Why Disney's Stock Dropped Despite 'Avengers: Endgame' Record-Breaking Box Office

Courtesy of Marvel; Getty Images/iStockphoto; Charley Gallay/Getty Images

Despite a downward trajectory since the film's $1.2 billion opening, it's clear that the movie studio is central to the mega-conglomerate's business success.

On April 29, the industry — and the world — was treated to news that Avengers: Endgame had smashed global opening-weekend box office records, causing shares of Marvel Studios parent Walt Disney Co. to … fall? Indeed they did, and did so again the next day. And the day after that. By the end of the week, the stock had sunk 4 percent. It's not exactly the reaction investors were hoping for, to say the least.

While some argue the success of Endgame was baked into Disney's shares weeks in advance, such reasoning is shaky, given that the film's $1.2 billion opening outperformed even the most bullish expectations — including those from Wall Street.

Disney's bottom line won't reflect the theatrical performance of the latest Avengers film for months, but that success already has cued a long-standing debate: Can the movie studio of a $240 billion entertainment conglomerate, no matter how successful, meaningfully move the needle for investors?

Despite the downward trajectory of the stock since Endgame's bow, the answer appears to be: Probably. This is partially because of the ripple effects a bonanza franchise like Avengers can have throughout a diversified company like Disney (a merchandise bump is expected and a Marvel-themed attraction is in the works at its California Adventure park).

A mere 12 days after Endgame opened, it had amassed $2.2 billion at the global box office, and some analysts were predicting that the movie might outperform forecasts by an astonishing $900 million. The most obvious beneficiaries, outside of Disney, are the theater chains, some of which received "buy" recommendations on Wall Street because of Endgame.

"It's hard to make too much out of one film's performance," says Michael Pachter of Wedbush. "This one is unique because it is part two of a cliffhanger Infinity War ending, and people rushed out to see it so they could avoid spoilers. That may be a model for the future."

Disney easily will be 2019's top studio when box office reports stream in at the end of the year, especially with its $71 billion acquisition of 21st Century Fox assets, including its film studio, now in the fold. But Disney also was king in 2018, and its studio accounted for just 19 percent of the conglomerate's $15.71 billion operating income, trailing its media networks (42 percent) and parks and resorts (28 percent).

At best, Avengers: Endgame will add about 12 cents per share to Disney earnings in 2019, says Cowen analyst Douglas Creutz. While impressive for a single title, it's minor compared with the $6.79 in per-share earnings that Disney is expected to post in 2019.

After the theatrical run, the company may see the film's biggest benefit in its Disney+ product, which will launch by year's end and will be the exclusive streaming home for the latest Avengers flick — and most other Disney releases — from here on out. Eventually, every movie in the Marvel Cinematic Universe will be at Disney+ as the company allows existing rights with rival streamers (Netflix and Amazon Prime, in particular) to expire. Marvel TV series also will debut exclusively on Disney+, another delayed benefit of the Avengers boost.

Disney will account for Disney+ profits largely in what used to be its weakest segment, formerly known as consumer products and interactive media, which represented only 10 percent of overall operating income in 2018. Some analysts say Disney+ will need 7 million subscribers at $7 a month just to make up for what it will no longer be getting by licensing content to Netflix.

In a move to bolster its studio ranks, Disney on May 1 upped president Alan Bergman to co-chairman of its studio entertainment division alongside Alan Horn. Bergman, 53, is now the presumptive successor to Horn, 76, who also was made chief creative officer. Both report directly to CEO Bob Iger, and some speculate that Bergman's promotion makes him a candidate to succeed Iger when he retires at the end of 2021. If that's the case, it surely speaks to the importance Disney places on its film studio, even if it is currently discounted on Wall Street.

"Disney has already proved that a single giant film can move the needle for a conglomerate," says Steven Birenberg of Northlake Capital Management. Among its competitors, he predicts NBCUniversal parent Comcast is best positioned to someday mirror the success Disney has had with Avengers. But for now, he adds, "Disney is unique in its integration of content across film, TV, theme parks and consumer products."

This story first appeared in the May 8 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.