This should have been a bad time to own Walt Disney (NYSE:DIS). The global pandemic, the great cable cord cut, and the end of broadcasting as we know it should have all sent shares of Disney stock down. A rare quarterly loss, $2.61 per share, was announced in August. Another loss is expected when the company next reports Nov. 12.
But the stock remains strong. It’s up 8% since reporting the loss. Most analysts still say buy. They believe its biggest risk going into the year, streaming, is paying off. They believe the rest of the company will soon follow it upward.
But will it?
Disney Catches the Coronavirus
Few companies have been hit as hard by the novel coronavirus as Disney.
That June quarter report saw revenue down 42%, from $20 billion to just over $11 billion. Park revenue declined 85%, movies down 55%.
During the September quarter, the fourth of its fiscal year, Disney slowly began re-opening resorts. But 28,000 workers were laid off at the end of the quarter. More layoffs are coming because of the poor American response to Covid-19, and its re-emergence elsewhere. Fans and former cast members may protest but the company’s hands are tied.
Then there’s the movie business. Disney moved its summer tentpoles, Mulan and Hamilton, into customer living rooms through Disney+ streaming. The latter was offered to spur subscriptions, the former sold as a pay-per-view event. Investors and analysts will want to know in November how that’s going, because pay-per-view is the future.
AMC Entertainment Holdings (NYSE:AMC), America’s largest movie chain, warned it could run out of cash by the end of the year. Rival Cineworld (OTCMKTS:CNNWF), which owns Regal, has shut those screens and is a penny stock. When the movies come back there may be no place to show them.
Streaming Takes Off
Disney reported 60.5 million paying customers at the end of June. This came after a November launch where it was bundled with Hulu and ESPN streaming services. The company said total streaming revenue was up 2% year-over-year. The executive who directed that success, Kevin Meyer, has since left for TikTok.
Disney+ still has far to go. Netflix (NASDAQ:NFLX) added 10 million new customers in the second quarter, bringing its total to 193 million. While Netflix usage holds steady there is evidence that Disney is losing momentum.
Hedge fund manager Dan Loeb of Third Point wants Disney to double its streaming investment. He says that without more money it will be permanently disadvantaged, as Yahoo was passed by Alphabet’s (NASDAQ:GOOGL) Google a decade ago.
Despite the stock rising on its latest reorganization, Disney has a crisis on its hands. Its purchase of Fox entertainment means it controls Hulu, but it doesn’t know what to do with it. Each time it moves a tent pole movie to streaming, as with the coming Pixar film Soul, it may be accepting pennies where there once were dollars.
The Bottom Line on Disney Stock
Investors have discounted a September loss, but they still have high hopes. Disney is trading at more than three times last year’s revenue, and almost 20 times 2019’s earnings of $6.54/share.
Analysts expect the theme parks to come roaring back next year. They may be right. They expect streaming to grow fast, and it already sells pay-per-view fights through ESPN+. They may be right on that.
But the Disney that’s emerging from the pandemic is very different from the one that went in. The company has caught Covid-19 and it’s going to be a long haul. I wouldn’t buy it until analysts can realistically calculate how long the recovery will take.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn.