Reports Q3 2020 earnings on Tuesday, August 4, after closing
Yield forecast: $ 12.4 billion
EPS expectation: – $ 0.61
It's hard to think of a good reason to buy Walt Disney Company (NYSE 🙂 shares now. COVID-19 continues to deprive the Burbank, CA-based company of its main sources of income: the iconic theme parks have been abandoned, while film and TV production is almost nonexistent.
Investors will gain a deep understanding of the extent of the damage caused by the pandemic to the sale of this entertainment giant when the company reports earnings for the quarter from April to June later today. That was the period when the American resorts were closed and international locations opened for only a limited period.
According to analyst consensus estimates, sales are likely to have decreased 40% for the company's fiscal third quarter, compared to the same period a year ago. Due to that sudden collapse, the company will lose $ 0.61 a share of $ 1.35 earnings per share in the same period last year.
Hurt by this massive deterioration in its business, Disney stock has fallen by about 20% this year. On Monday the stock closed at $ 116.35.
The latest wave of coronavirus cases in Florida and other parts of the US and the re-formwork of Disney's in Hong Kong indicate that the House of Mouse will not have much good news about its recovery during the Tuesday report .
Last month, Disney also announced it was making some major changes to the movie calendar, including indefinitely postponing "Mulan" from its debut on August 21 and pushing back the premieres of future Star Wars and Avatar Movies.
Prolonged Crisis
Disney managers are trying to address a protracted crisis on many fronts, forcing a rearrangement of priorities that can have lasting consequences.
"Many of the company's plans to reopen were subject to decisions by legislators, workers, and consumers – as well as the trajectory of the virus itself – which caused uncertainty about a business model that was once almost entirely under the company's control , "according to a recent analysis in the Wall Street Journal.
Given this grim working environment, profitability in Disney's domestic parks may not reach pre-pandemic levels until 2025, according to an analyst report by Cowen published last week.
"While we think Disney will continue to be an important share of many portfolios because of its high quality, … the stock story is likely to get worse before it gets better because of the path the virus takes in the US., analyst Doug Creutz wrote in a recent note.
What that means in short is that Disney doesn't have many options other than to take drastic cost-cutting measures.
Business executives have already cut wages and some 100,000 workers, mostly park workers, have been unpaid. Investors can learn of additional efforts in today's announcement.
A bright spot in this otherwise gloomy view: the company's recently launched Disney + video streaming service.
Supported by orders from those staying at home, the service is expanding rapidly. It has attracted over 56 million subscribers since its launch in November. While Disney + is still burning money, it is in a strong growth mode and could become one of the company's main revenue-generating units in the post-pandemic world.
According to a recent report by Goldman Sachs, investors underestimate the power of Disney +, which is expected to reach 150 million subscribers by 2025, bringing Disney closer to its main competitor, Netflix (NASDAQ :).
Bottom Line
Given that amusement parks accounted for nearly 30% of Disney's revenues last year and many of the upcoming films are now on hold, it is hard to see Disney coming out of this recession soon.
That said, Disney has a powerful brand and a long history of surviving in some of the worst economic downturns. For these reasons, in our opinion, it's worth holding onto this name while the company is going through this tumultuous time.
