Even after Friday’s stock jump, Disney shareholders have had a month to forget; will the company’s slide continue?
Friday offered a brief respite for Disney shareholders after the company has been rocked by the double whammy of longtime CEO Bob Iger stepping down, and, more recently, the pain inflected on its parks, box office and TV businesses by the coronavirus pandemic.
By the time markets closed on Friday, Disney shares were up 11.7%, to $102. That jump coincided with a healthy overall Wall Street bounce on Friday — and followed a brutal recent stretch for the company. Even after its Friday boost, Disney stock is still 11% below where it closed last week and even further away from the $140 per share price where it was trading a month ago.
Disney isn’t out of the woods yet. Thursday’s closure of Disneyland and Disney World in the U.S., as well as its theme park in Paris, will cost the company big bucks. That isn’t debatable. Domestic parks brought in $17.4 billion in revenue last year, meaning a two-week shutdown in the States could cost around $700 million in sales. And earlier this week, UBS analyst John Hubelik wrote that Disney could be looking at a $2 billion dent in its quarterly revenue if its park closures last a month.
Can Disney rebound from its plunge? Some analysts believe the company’s reliance on parks attendance makes it especially vulnerable right now, especially compared to other Hollywood giants. “Fundamentally, Disney has been more exposed than a number of other studio businesses due to the size and scale of its parks operations and its dominance in box office,” Ampere Analysis research director Richard Broughton said. “Compared to other groups more heavily diversified into onward licensing and production for third parties, what was perhaps a strength for Disney in recent periods has become an unexpected weakness — at least in the short term.”
Jon Giegengack, an analyst with Hub Research Group, agreed, saying he doesn’t expect an extended Disney rally until more is known about the outbreak’s impact.
“I don’t think shareholders will see a recovery until the scope of the coronavirus is known. That’s probably still some weeks away, and, as we’ve been told, things will get worse before they get better,” Giegengack said. “Disney’s recovery will depend on how long it takes the economy in general to recover from this shock, how long containment measures last and how confident consumers feel about spending when it’s over.”
In short: Disney likely has more painful Wall Street days on the horizon. Investors bet on where a company is headed, and in the immediate future, Disney’s sales will take a severe hit. That has likely spooked many otherwise loyal shareholders in recent days. But after the initial punch is absorbed, Broughton is optimistic the company will bounce back.
“The quarantine response and immediate behavioral changes stemming from coronavirus represent a one-off hit to Disney’s box office and parks businesses — an organization the size and scale of Disney will be able to weather the temporary storm,” Broughton added.
Right now, though, this is what Disney executives and investors are looking at: the parks shutdown; the postponement of three major movies coming out between March and the end of April, including “Mulan,” which was tracking toward an $80 million domestic opening weekend; the delayed production of several projects, including its latest “Honey I Shrunk The Kids” sequel; and a crippled TV business, as ESPN and ABC scramble to fill the void left by the the disruption in the NBA and Major League Baseball seasons.
During the first quarter of 2019, NBA programming accounted for 17.3% of ESPN and ABC’s viewership, according to data shared by UBS. Another 0.7% came from MLB, with baseball season just starting in early spring. That’s a large chunk of programming ESPN and ABC will have to replace, and ratings will suffer as a result. It’ll take months to fully grasp how much financial damage coronavirus did to Disney, but conservatively, the company could be looking at hundreds of millions of dollars at the box office being scrubbed from its Q1 and Q2 revenues, along with a temporary decline in sports viewers.
Is there anything Disney shareholders to be bullish about? Actually, yes, according to Giegengack. Disney, thanks to Disney+ and its mountain of library content, is well-positioned to capitalize on more people staying home.
“At least for a while, people are going to be spending more time at home. They’re going to need things to keep them busy, and I suspect we’ll see more renting (of) PPV movies and shows (or) subscribing to one more SVOD service with money that might otherwise have been spent going out,” Giegengack said. “We’ve seen Netflix (for example) weather the storm better than many other tech stocks. Disney obviously has exposure that Netflix doesn’t, but demand for content at home could cushion some of the blow at the box office.”
It remains to be seen if Disney will take more radical steps, such as releasing one of its postponed theatrical releases on Disney+, to pad its 28.5 million streaming subscribers. To satiate Wall Street in the near-term, Disney may need to think outside the box. But analysts don’t expect the Magic Kingdom to be permanently damaged by the virus currently upending its business — something that, along with Friday’s rebound, should offer shareholders a bit of hope.
Giegengack added: “It’s not like the demand for their products has gone away, just been delayed. And for content that you can watch at home, there’s reason to think demand will be higher than ever.”