Superheroes and comic books might seem like kid stuff — they’re anything but.
All you need to do is look at the success of the Spider- Man franchise to
see their massive profit potential: hundreds of millions in box office sales,
merchandising, toys, games, you name it. And I didn’t bring up Spidey’s name by
accident: He is one of the many characters that belong to Marvel Enterprises
(NYSE: MVL), a business that attracts children, adults, and investors alike.
Marvel has been a mainstay of the comic book business since 1939. The company
still publishes comics today — claiming a 45% share of the industry — but it has
also been branching out and finding alternative revenue streams. Most notably,
it formed a highly profitable business by licensing its characters to companies
that make toys, video games, theme parks … and, of course, movies.
Its portfolio holds an army of more than 5,000 superheroes, some of which have
translated into blockbuster movie profits. In addition to Spider-Man,
characters that have ascended to the big screen include X-Men, Fantastic
Four, Blade, The Incredible Hulk, Daredevil, and Ghost Rider. Although not
all of Marvel’s superheroes are so well-known, the box office success of the
movie Ghost Rider proves that even relatively obscure characters can get
a strong response from audiences. This also says to us that superheroes are not
a fad, and that these kinds of stories aren’t likely to go out of style. You
could probably argue that they’re about as American as apple pie.
Your friendly neighborhood money machine
A lot of things have changed since I first recommended Marvel for Stock
Advisor back in 2002. At that time, the company was struggling with a
turnaround, was mired down with debt, and Wall Street analysts didn’t know it
existed. (If they did, they didn’t seem to care.)
Now, Marvel has cleaned up its balance sheet (although it has recently taken on
some debt related to film production, which I will discuss in a moment),
produced 14% annualized revenue growth for the last five years, and it generates
an impressive amount of free cash flow. The company is expected to enjoy 18%
annualized earnings growth for the next five years as well, although it has some
plans that arguably make it difficult to gauge coming growth properly. That’s
not necessarily a bad thing, though.
Marvel takes a bigger bite
You see, the big news is that Marvel plans to begin producing its own films.
Its first will be Iron Man, due to hit the theaters in 2008, and a Captain
America movie is slated to follow. Just think of the implications of a smash-hit
superhero movie franchise in which Marvel can keep all of the box office
take, rather than just getting a cut from the movie studios.
To put it all into perspective, Spider-Man 3 raked in over $890 million
worldwide — but even Ghost Rider brought in nearly $230 million in its
own right. Footing the bills will be more costly for Marvel, and it’s a higher
risk strategy, but it could also generate much higher rewards if the
company cranks out more blockbuster hits.
I’ve re-recommended Marvel two times for my readers at Stock Advisor —
both of which have been extremely profitable — and right now, we have yet
another great opportunity to catch Marvel’s rising star. Its stock price
recently receded because of some short-term factors, such as the passing of
Spider-Man 3 mania. (A little post- Spider-Man hangover isn’t
historically unheard of with Marvel.) But we Fools are in it for the long term,
and Marvel is set to go up, up, and away in the coming years.
