The only downside I can see to The Walt Disney Company (NYSE:DIS) is that it can run afoul of its own size. Firstly, a company this large can be incredibly complicated to run. Past directors and chief executives have had issues with mismanagement and flops at the box office, which cost the company dearly. A few poorly received movies can put a serious damper on the entire operation.
Also, having such a massive pool of intellectual property to draw from can lead to decisions that aren’t popular at the time. While creating a cult classic is great, movie makers earn most of their acclaim and profits during opening weekend. Had The Avengers been released in 1998, computer graphics technology notwithstanding, there’s a good chance it wouldn’t have been nearly as large a hit as it was in 2012.
While The Walt Disney Company (NYSE:DIS) is a complicated company, it’s still trading for a relatively inexpensive 19 to 20 times earnings. This isn’t much higher than the S&P 500, and Disney has a lot that many companies don’t. So I’d recommend it wholeheartedly.
Silly profitable
World Wrestling Entertainment, Inc. (NYSE:WWE) has one of the silliest business models around. The company promotes pseudo-sports that it has outright admitted are fake and pre-determined to crowds who love it anyway. As the largest promoters of synthetic athletic contests with a large fan base, the World Wrestling Entertainment, Inc. (NYSE:WWE) has a pretty solid moat. It also has a pretty decent 4.9% dividend yield.
Wrestling goes through phases of higher and lower popularity, and as of the past few years it’s on the lower end of the sine wave. Also, the World Wrestling Entertainment, Inc. (NYSE:WWE) is trading at more than 38 times its earnings as of this writing. In addition, the WWE is only pulling 3.9% profit margins. If the faux sport’s popularity stays low for awhile, the overhead of the music and merchandising components may weigh down the company into unprofitability. Also, the McMahon family has a 96% voting hold over the company — so ordinary shareholders shouldn’t expect their opinions to be considered.
Overall, I only recommend the World Wrestling Entertainment, Inc. (NYSE:WWE) if you believe that you can hold on through several low-profit years until this type of exhibition’s popularity soars once again. This could be a solid contrarian play if you can find the WWE during a nice dip.
The Foolish bottom line
Entertainment has great potential for profit, but it is not guaranteed. Ultimately, entertainment companies rise or fall on the popularity of what they have to offer, and the public’s tastes can be fickle. Ultimately, having a wide net of different intellectual property and the ability to efficiently market it all determines how well it ends up doing.
Chris Hodge has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney.
The article How Much Juice Is in these Entertainment Companies? originally appeared on Fool.com.
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