Comic Fodder

Marvel Entertainment? Meet Wall Street. Wall Street, meet Marvel.

It’s going on close to a year since I covered some of the real-world fiscal accomplishments of the leading comic book publisher, so sit back and watch me crunch the numbers. Maybe I’ll even get the math right.

I remember the thrill I had when two of my interests combined. I was reading the Wall Street Journal, and the front page had an article that featured Marvel’s bankruptcy, and the problems with Carl Icahn, and I just wish there was anybody I could have shared that moment with, but almost nobody is interested in both macro-economics and comic books. At least, nobody I could find in my office! Anyway, ever since that moment, I have kept tabs on how the company is doing with the sharks that make up the investors in the American stock market.

Here’s the strange thing about the price of a company’s stock: it all seems to revolve around what other people “expect.” The company issues guidance on what it thinks it will do for a given quarter, and the analysts all go forth and decide if the company is correct about their own guidance, if they are hyping, or if they are being way too conservative. Then the free market assembles all of those opinions into one averaged-out amalgam of their guesses, and voila! You have the judgment from Wall Street of what Company X should make for the next quarter or year.

This quarter is tricky because there’s a kind of flip going on. Marvel Entertainment did better than expected… and their stock price dropped. What? Let’s take a “normal” company report and see what passes for business as usual. Blockbuster has been losing money forever (yay, Netflix!), and their most recent report posted another quarterly loss. What is more, it was a bigger quarterly loss than the same quarter from a year before. Wall Street likes to compare not just this quarter with the one before it, but also likes to go back an entire year, and make fun of companies that way, too. Note that their income, reported in the form of “revenue,” actually went up, and they tried to tell investors that future business would be better. Didn’t matter. The company has performed poorly, and there is a punishment for that.

DC is hard to report on, because they are owned by Time Warner, which is such a humungous business conglomerate that their earnings reports mention the really big numbers. Publishing is such a small part of the overall operation; it doesn’t even make the highlights.

Back in December of 2007, I reported that Marvel was betting on their movies to give them a lift, and that it would be a pretty good bet. Indeed, when the Iron Man movie proved such a big hit, the stock zoomed up somewhere around $3 a share, about ten percent of its total worth! Since then it has done a little roller coaster, and the biggest wave lately was down, after it issued its latest quarterly earnings. “The high-margin licensing business accounted for three-quarters of its revenue in the first quarter, while publishing made up most of the rest.” (Notice how the publishing arm makes up less than 25% of its total revenue? More commentary in the future on that coming from your Filmfodder Comics Team!)

So here’s what happened: Marvel financed its own movie studio and came up with a summer blockbuster, a hit both in box office receipts and merchandising revenue. Not only that, but they beat analysts’ “expectations.” Normally, that is cause for raucous celebration and a big jump in the stock price, on larger-than-average volume. Instead, the stock plummeted, with the biggest drop in price I have seen in more than a year, on more than twice the normal number of shares traded. The explanation was that the “analysts” turned their attention to the future, and made pouty noises and clobbered the stock better than Ben Grimm.

This is what is funny: Marvel actually raised their outlook for future quarters, meaning they took their previous guidance saying they would make so many millions of dollars in a given quarter, and said they would instead make even more millions than that! But the “analysts” had higher “expectations.” The greedy (censored)s wanted them to announce they would make even more beyond that, so they all declared their disappointment, and this was hailed as the reason the stock price dropped.

Now, stock prices tend to move on more than just news. Sometimes it’s fundamentals, maybe sometimes it’s the chart formation, and maybe sometimes it’s the phase of the moon. Financial reporters latch onto any explanation they can sell in the news hour and claim that is the reason. The real answer is that the stock market is wildly complicated, smarter than any one individual, and nobody really understands which direction the beast will move in next. But the reporters, they like to pretend they know, and this is how the story of this particular report was delivered.

The strange thing about Wall Street analysts is, they appear to love being proved wrong, much like genuine scientists when they get a result they were not expecting; it’s when they truly learn something new. Ordinarily, when a company beats expectations (there’s that word again!), the company’s primary reward is a rise in its stock price. An analyst LOVES to buy companies that make more money than the analyst himself thought it would. Add to that the cherry on top, that Marvel announced it is not only making money hand over fist faster than you could count, bub, but it’s also going to make more than that coming up. Again, this is just another traditional reason to buy the stock, which should mean an upwards movement.

Did the analysts suddenly get upset at being proved wrong? Did they sell their shares in a fit of frenzy, a la an arrogant Dr. Doom who cannot admit he made a mistake? Come on, their overall net income increased by a spectacular 60%! No, the big bug up the analysts’ bu–ahem- “expectations,” is that the revenue from their hit movies has not been reflected in their reports, and maybe not fully in their future guidance. It sounds like they are fuming because they know Marvel made some additional money, but they haven’t written it down yet.

Does Wall Street know nothing about how Hollywood works? The box office may say Iron Man has made more than $316 million dollars, but it will take forever for everyone who worked on that movie to get paid. Hollywood has some of the most “creative” methods of reporting income ever imagined. Other people get a bite out of that big haul as well; the actors and the crew, the distributor, etc. Does Wall Street know nothing about how its own respective industry works? You can’t report future box office income in a quarterly report that covers a time period before the movie came out. You can, however, report the revenue from some of your marketing deals that you made for merchandising with the movie, and Marvel did, showing an increase in both revenues (sales) and earnings (profit, after paying pesky things like salaries) in their licensing division.

But there were complaints that Marvel is being “conservative” in their guidance. Wall Street positively hates “conservative.” If you are the head of a company, and you are conservative in guessing how much money you MIGHT make, the analysts will yell at you and throw things at you. Okay, not really, but they will grumble al the way back to their word processor and haughtily declare that your company will make so much more, and they can tell, darn it!

Did I mention those same analysts were wrong in their predictions of how Marvel would do this very quarter? So let me see if I have this straight: you were wrong in predicting how well the company would do; they made more than you thought, and raised their guidance for the future, predicting riches; they have promised you an Iron Man 2, a Thor movie, an Avengers movie, a Captain America movie, and Sony’s going to do three more Spider-Man movies in the future. I haven’t even mentioned half the things they plan.

So in return, you said THEY were wrong about how much money they will make in the future, threw a fit because you didn’t see more future-money on paper, and made their stock plummet. Guess what? In the few days since that happened, a bunch of other people came in and bought the stock, and its price is almost back up where it was before it crashed. Because everybody else has more common sense than you, Mr. “I was wrong” Analyst.

Oh, and by the way, net sales from its publishing division dropped, meaning the comics portion of the biz didn’t bring in as much money as it did compared with last year. Just wait for me to rant on that.
Tpull is Travis Pullen. He started reading comics at 5 years old, and he can't seem to stop.

Well, where to start....

Your rant about the comics not performing as well should state something about how the comic book industry as a whole believes that a movie based on a comic book, isn't necessarily good for the comic book itself. And vice versa.

Wall Street doesn't know how Hollywood works: true. Hollywood doesn't necessarily know how itself works: Also, quite sadly, true.

You can sift through various company newsletters and get info on how DC is doing, they just don't really talk about it in the Time Warner annual report.

Excellent article overall. However, I would dispute your assertion that Marvel is the best comic book company, as DC has all the best characters....

-- Posted by: Mike Shields at August 12, 2008 1:12 PM

Perhaps you should check DreamWorks Animation's 2Q results so you can better understand why Wall Street was disappointed with MVL's 2Q - both use Paramount as their distributor and both do 2 films per year.

-- Posted by: RJ Jones at August 12, 2008 5:20 PM

Perhaps the author here should check DreamWorks Animation's 2Q results so he can better understand why Wall Street was disappointed with MVL's 2Q - both use Paramount as their distributor and both do 2 films per year. The disparity in terms of timing on profit flow for the 2 companies is puzzling.

-- Posted by: RJ Jones at August 12, 2008 5:22 PM

Thanks, Mike. however, I dispute the notion that I have made any assertion about which company is the "best." Here I only show earnings reports, I do not believe I make any judgments on any company being better than another. I shall keep my personal preference a secret... for now!



-- Posted by: tpull at August 12, 2008 9:01 PM

RJ Jones, I did look at that, but the thing of interest to me was that Dreamworks actually lowered their future guidance, but the analysts all maintained their "buy" rating for it, whereas Marvel raised their future guidance and was still punished. (At least one analyst lowered Dreamworks to "hold" that I know of; not sure how many others are out there.)

The real deal, in my opinion, is that short-termers ditched Marvel when they were told the movie profits would not be counted until 2009, after paying off promotional costs. They did not want to wait (maybe their money was leveraged and they needed a quick payoff?), so got out, unwilling to be patient and wait for the payday.


-- Posted by: tpull at August 12, 2008 9:12 PM