As arguably the most successful entertainment conglomerate of all time, Walt Disney Co has handsomely rewarded long-term investors willing to patiently watch the company work its magic.
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Over the past five years alone, for example, Disney shareholders have enjoyed a staggering 221% return on their investment including dividends, trouncing the S&P 500's respectable 96% return over the same period:
But make no mistake: That doesn't mean Disney stock can't continue outperforming the market from here. Disney is able to create value for shareholders precisely because its business is set up - brilliantly I might add - for long-term success. Here are three ways the House of Mouse demonstrates that brilliance:
1. Investing for the future
First, note the majority of Disney's capital expenditures each year go to investing in its Parks and Resorts segment, be it building new parks, adding rides, or updating existing attractions.
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Sleeping Beauty's Castle at Disneyland, Credit: Walt Disney Co.
Last fiscal year, Disney dedicated over 81% of its $3.311 billion capital expenditures budget to parks and resorts, including a slight year over year bump to $1.184 billion for domestic properties, and a 55% jump to $1.504 billion for international locations.The latter increase came from higher construction spending in advance of the 2016 opening of the nearly 1,000 acre Shanghai Disney Resort, which Disney CEO Bob Iger recently noted was nothing more than an "ambitious idea" 15 years ago.For perspective, Shanghai Disney Resort is expected to host around 25 million annual visitors, compared to the roughly 20 million visitors the company welcomed last year through the gates of the Magic Kingdom.
But in the meantime, Disney's existing Parks and Resorts still enjoyed record attendance last year, even as it increased daily admission prices at the Magic Kingdom for the 27th consecutive year. As a result, Parks and Resorts' operating profit increased an impressive 20% in fiscal 2014 to $2.66 billion, driven almost entirely by consumers' continued enthusiasm for Disney's timeless domestic parks.
In short, Disney knows all too well that by investing heavily in its parks today, it'll be able to reap the resulting financial rewards for decades.
2. Disney is a movie franchise machine
Next, consider Disney's studio operations. Once Disney finds its next big hit, it has no qualms building it into a franchise through sequels, three-quels, and -- if the demand exists, even fourth and fifth installments (Pirates of the Caribbean 5sets sails in 2017!). In doing so, Disney can take advantage of the work it has already done to build up popular titles, lovable characters, and wonderful storylines.
Some of those storylines come from its namesake studio brands like Disneynature, DisneyToon Studios, and Walt Disney Animation Studios. And Walt Disney Animation, for its part, was responsible for bringing audiences massive hits like Big Hero 6 and Frozen, the latter of which ended its theatrical run as the highest-grossing animated film of all time, and now unsurprisingly has a sequel on the way.
But Disney isn't afraid to dole out the cash necessary to buy the outside talent and intellectual property if need be. Take Pixar, for instance, which Disney acquired for $7.4 billion in 2006, then brought us hit follow-ups like Toy Story 3 and Monsters University. Currently confirmed on Pixar's sequel slate are long-awaited titles includingThe Incredibles 2, Finding Dory, and Toy Story 4.
Disney Marvel has three more Avengers films planned, Credit: Walt Disney Co.
Disney also continued its shopping spree in 2009, spending $4 billion to swallow up Marvel Entertainment. Marvel's films operate in one cohesive cinematic universe -- so may as well be one giant sequel after another -- and have collectively grossed over $7 billion at the box office worldwide. Marvel has also revealed ambitious plans for 12 new movies through 2019, most notably including three more Avengers films, Guardians of the Galaxy 2, a yet-to-be-named Spiderman team-up with Sony Pictures, and third films for both the Captain America and Thor franchises. With more than 9,000 distinct characters in the Marvel Cinematic Universe, this revenue stream won't run dry for a long, long time.
And last but not least, Disney spent another $4 billion to buy Star Wars and Indiana Jones creator Lucasfilm in 2012. So far, we know its efforts to capitalize on these new franchises will begin with Star Wars: The Force Awakens later this year. And at Disney's annual shareholder meeting earlier this month, management revealed plans for a Star Wars spinoff next year titled Rogue One, as well as Star Wars: Episode VIII in mid-2017.
In the end, arguably no company is better than Disney at building and monetizing movie franchises. And with its already-vast stable of studio characters and brands, that won't change any time soon.
3. Putting it all together
Finally, when the curtain falls, Disney is adept at taking its intellectual property and letting the cash flow downstream to its other supplementary segments.
Disney Junior.'s Sophia the First feautres guest appearances from classic Disney princesses, Credit: Disney
First, Disney regularly exploits connections between the big and small screens. Disney's ABC network, for example, typically takes advantage of crossover episodescoinciding with the release of each Marvel film to boost ratings for itsMarvel's Agents of S.H.I.E.L.D. series. And on Disney's kid-centric channels, shows like Sophia the First often feature appearances of well-known Disney princesses. Others are spin-offs of classics, like this November'slaunch of The Lion Guard, or the recent decision to rebootDuck Tales in 2017.
Collectively, Disney's studio and media networks segments then translate to higher sales and profits at other downstream businesses. I already discussed the growth at parks and resorts above, for instance. But Disney's consumer goods segment also saw revenue and operating income climb 9% and 19%, respectively, last year. And on the heels of a successful launch of the new Disney Infinity game, which incorporates characters from all of the aforementioned franchises, interactive gaming sales and operating income rose 26%, helping the segment swing from an $87 million operating loss to income of $116 million over the same period.
All things considered, and given each of the three strengths above, I find myself in awe of the efficient entertainment giant Disney has become. Over the long-term, and as Disney's reach continues to grow around the world, I see no reason to believe the stock won't also continue to represent a superior option for long-term investors.
The article 3 Reasons Why The Walt Disney Company Is Brilliant originally appeared on Fool.com.
Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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