Walt Disney: Quantifying the Frozen Effect; cartoon movie Frozen has raked in nearly $1 billion worldwide

February 24, 2014, 3:57 P.M. ET

Walt Disney: Quantifying the Frozen Effect

By Ben Levisohn

Anyone who has a little girl, as I do, knows the power of Walt Disney’s (DISFrozen. She acts out the movie; she sings the songs (and has me singing them too); and she wants to grow up to be Princess Elsa, the movies ice-empowered heroine.

And anyone that’s an investor knows how well Frozen has done at the box office–the cartoon has raked in nearly $1 billion worldwide, according to Box Office Mojo.

But has Frozen done a little too well? Perhaps, say Morgan Stanley’s Benjamin Swinburne and team. They explain:

Since Frozen’s release, [Disney] has outperformed peers by ~1,100bps (adding ~$14bn in cap)…

We agree that box office success for Frozen will likely translate into further upside at Studio and Consumer Products (most notably in F2Q14), and also generate ancillary benefits at Interactive, Parks, etc. as DIS leverages the franchise across multiple platforms. However, we believe the EPS lift has been reflected in share price appreciation over the last several months, and that in ’15/’16 the EPS lift from Frozen is fairly immaterial. To reach consensus FY15 estimates, we estimate Film/CP/Interactive/Broadcast need deliver over 2x the incremental EBIT in FY14-15 when compared to FY12-FY13….

While DIS has recently performed ahead of expectations at the box office (Thor 2, Frozen) and has two upcoming Marvel films in FY14 (prior to major releases like the Avengers sequel in FY15 and Star Wars: Episode VII in early FY16), the volatility of Studio performance remains a key risk, with incremental upside relying on further returns beyond what is already
discounted in shares.

In other words, the success of Frozen has been surprising and spectacular, but to warrant its current share price, Disney needs more of them. It could happen. But then again, it could be nothing more than a fairytale.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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