The Walt Disney Company (NYSE 🙂 is in the news these days for all the wrong reasons. His business, which thrives on shared group experiences, is suffering after the global spread of COVID-19 forced the closure of its theme parks, resorts, movie theaters and cruises around the world.
The company, based in Burbank, California, announced this week that it will lay off 28,000 employees in its US theme parks, including Walt Disney World and Disneyland. Disney's California locations are still closed due to state restrictions, while the Florida parks were operating with limited capacity and weaker traffic than Disney expected.
"As heartbreaking as it is to take this action, this is the only viable option we have in the face of COVID-19's long-term impact on our business," said Josh D & # 39; Amaro, President of the parks division, in a memo to workers.
Last year, the Disney business unit, which includes theme parks, cruises and consumer products, accounted for 37% of total company sales. With the pandemic still raging and a vaccine still uncertain, the situation is equally daunting for Disney investors.
The House of Mouse posted its loss since 2001 in August, reaching $ 5 billion, compared to a profit of $ 1.43 billion in the same period a year earlier. Total sales fell 42% to $ 11.8 billion. The company's previous quarterly loss, which was $ 567 million, came in early 2001, according to data from FactSet.
Despite this extraordinarily grim picture, Disney stock is holding up reasonably well. After dropping 40% during the March crash, it is up more than 50% since then. It closed at $ 123.31 yesterday, a 16% discount for the year.
A Bright Spot
One bright spot in this otherwise gloomy outlook: the company's recently launched Disney + video streaming service. Stimulated by stay-at-home orders, the service is expanding rapidly. It has attracted more than 60 million subscribers since its launch in November, a point that took Netflix (NASDAQ 🙂 about eight years to reach.
On Disney +, Disney released the movie version of Hamilton more than a year ahead of schedule, and Mulan added last month for a premium price of about $ 30.
"Disney Succeeds in the Land Grabbing Phase of Direct-to-Consumer, and Has the Clearest Path to Successfully Transform its General Entertainment Programming and Content Production Companies into a Globally Scaled, Vertically Integrated Streaming Entertainment Leader,"
Deutsche Bank analyst Bryan Kraft said in a recent note, upgrading the stock to buy. He added:
"Direct-to-consumer scaling up at this stage of land grabbing of the industry is key to Disney's success as it provides significant opportunities to monetize more meaningfully with a large subscriber base"
According to a recent note from Goldman Sachs, investors are underestimating the power of the Disney + service, which is expected to reach 150 million subscribers by 2025.
"We also expect that DIS & # 39; s Parks and Studios segments will fully recover after COVID, and that synergies with DTC (direct-to-consumer) will be undervalued," Goldman Sachs analyst Brett Feldman told clients .
With these optimistic predictions, however, there are also a large number of analysts who fear the pandemic could permanently damage Disney, and if theme parks and movie theaters fail to recover, Disney could emerge as a different company.
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Of the 30 analysts researching the stock, 15 give it a buy rating; there are three sell recommendations and 12 advise to hold the stock. The average price target for the next 12 months is approximately $ 135 per share.
Bottom Line
Since Disney owns some of the most iconic media and entertainment assets in its industry, it is likely to recover quickly once the pandemic subsides. control is. You can already see that optimism in the share, which does not offer an attractive entry point. Investors with a three to five year investment horizon should wait on the sidelines to get more value from this trade.
