With its parks closed and film & TV production halted, the company has lost two major revenue streams; is Disney a good investment?
The Walt Disney Company (NYSE: DIS) is the world’s largest entertainment conglomerate. Owner of 20th Century Fox and two huge film franchises in Marvel and Star Wars — as well as parks, cruise lines, and real-estate — the company is valued at over $200 billion and has seen its revenue increase nearly 83% since 2010, reaching nearly $70 billion in 2019. The pandemic cost the company approximately $1.4 billion last quarter with closures of its parks, resorts, cruises, and sporting events, and the question must be asked: Is Disney a good investment?
The bull case for Disney
It seems that the pandemic has left Disney with only one revenue stream operating at normal capacity in its streaming service, Disney+. The streamer gained over 21 million subscribers during the outbreak and although original content production is on hold, it has enough popular content to keep subscribers entertained. When production resumes on new programming, Disney’s ownership of some of the most popular and profitable franchises in the world means that it can create spin-offs like ‘The Mandalorian’ with very little risk of failure or losing viewership.
Disney plans to release the new Star Wars movie, ‘Hamilton,’ and ‘Frozen 2’ early on its platform and has skipped theaters altogether with films like ‘Onward;’ the highly anticipated ‘Mulan’ will be released in theaters at the end of July. The best news for the company is its announced phased reopening of its Florida theme parks Magic Kingdom and Animal Kingdom on July 11, followed by Epcot and Hollywood Studios on July 15. Upon reopening Shanghai Disneyland with strict safety guidelines and limited capacity on May 11, the entire week sold out almost immediately.
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This is a good sign for the company as its Florida theme parks are much more popular and will probably see a resurgence in business once they reopen. Additionally, Disney+ has yet to penetrate the global market as it’s currently being offered in the U.S., eight European markets, and India. Disney’s direct-to-consumer revenue, which includes Disney+, nearly quadrupled year-over-year to $4.12 billion in the last quarter thanks to the pandemic and is expected to grow even more as analysts are anticipating 226 million subscribers by the end of fiscal 2024.
The bear case for Disney
Disney reported a 58% drop in operating income from parks and cruises. Additionally, it reported 60 cents earnings per share and $18.01 billion in revenue. Analysts had expected 89 cents and $18.03 billion. The report doesn’t paint a complete picture of the damage done as the company closed its parks well into the quarter.
People aren’t traveling, taking cruises, or going to the movies; film & television production has stopped, movie theaters are closed, and sporting events have been postponed. Disney has irons in all of these fires and is expecting more losses next quarter. When the parks do re-open, they will look very different from pre-pandemic times as the capacity will be limited, there will be temperature checks, masks, sanitizing stations, and social-distancing squads; additionally, all crowd events like parades and fireworks will be canceled and people can’t touch cast members, so no photographs with Mickey.
Will people have enough money or want to travel or go on cruises at all, let alone to Disney World and what if there’s a resurgence of the coronavirus at a park, will that affect attendance and Disney’s bottom line? Will people want to return to the cinema, with its crowded rooms known for coughing patrons, and if not, will Disney just release everything on its streamer moving forward?
So, is Disney a good investment?
Absolutely! As soon as everything re-opens and productions resume, Disney will see an influx of revenue from many different sources. Additionally, Disney+ has a great deal of growth in its future and with stay-at-home and social distancing having been in place for months, there might be a baby-boom in the near future, securing additional customers for the service in three-to-four years’ time. Seven of the ten highest-grossing films of 2019 were Disney and with its ownership of the biggest franchises in the world, it will probably continue to dominate the box office.
Does Disney pay dividends?
Yes, semi-annually. In 2019, its dividend was $1.76. The company suspended payments for the first half of fiscal 2020 to secure $1.6 billion in cash.
What is Disney’s stock price?
As of May 29, 2020, $117.37
How many subscribers does Disney+ have?
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