The Walt Disney Company (NYSE 🙂 is in the midst of a nasty recession. Thriving on shared group experiences, the company is suffering from the worldwide spread of COVID-19 that has forced the closure of its theme parks, resorts, cinemas and cruises around the world.
Hurt by this unprecedented challenge, the House of Mouse grossed $ 1.4 billion in its operating income for the last quarter, including a $ 1 billion hit that came only from shuttered theme parks and the rest of others business units.
But the worst is yet to come. The current quarter will be the quarter in which Disney will experience the full impact of the closings of its entertainment assets, along with the closure of movie theaters and the loss of live sports on its flagship ESPN cable network. Analysts predict that the company will lose hundreds of millions of dollars and sales will fall across the board.
This heavy blow the Disney shares lost a quarter of their value this year. They fell 1.27% to $ 107.77 from yesterday's end.
Nevertheless, the entertainment giant has taken several measures to reduce the impact of events on its future earnings. It has temporarily fired thousands of employees and announced cuts in directors' salaries. In an effort to further preserve cash, the company said last week that it will cancel its dividend payout in July, save about $ 1.6 billion, and cut capital expenditures by $ 900 million.
In this bleak situation, where the future is uncertain, Disney investors face difficult choices. Should they sell Disney stock or stay true to the company that has had a long history of recession and wars?
On the Road To Recovery
analysts are very hopeful about the future of Disney. Of the 33 that cover the stock, 22 give a buy score; there is one sales advice and 11 advice to keep the stock.
Since Disney owns some of the most iconic media and entertainment assets in its industry, the Burbank, California-based company is likely to recover quickly once the pandemic is under control. Chairman Robert Iger, stressing this during a meeting with analysts at a conference call last week, said the company "will survive this" crisis.
A bright spot in this otherwise gloomy view: the company's recently launched Disney + video streaming service. Supported by orders remaining 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.
That said, the road to Disney's recovery will be slow and gradual, as demonstrated yesterday in Shanghai, where China's Disneyland welcomed visitors for the first time since January. Local authorities allowed Shanghai Disneyland to reopen with a capacity of 30%, or about 24,000 people a day.
In order to reach the gates of Shanghai Disneyland, guests had to check body temperature and demonstrate that their health status was confirmed with a smartphone app for tracking infected persons. Masks were mandatory, while some of the famous attractions were canceled, including parades, fireworks, and meet-and-greets featuring famous characters, according to a report in the Wall Street Journal.
Bottom Line
Disney stocks have come back from the March lows, showing that even during the worst pandemic investors have not lost hope in the company that some of the world's best entertainment assets under its umbrella.
At the same time, it is clear that Disney's earnings will not return to normal until a global drug for the coronavirus is available. For long-term investors with a horizon of two years or more, Disney stock remains a good bet.
