Disney DIS is on the ropes, with its diverse entertainment portfolio getting crushed in March quarter earnings last night. Disney announced that COVID-19 cost the company $1.4 billion in operating income this past quarter, and it appears that the current quarter is only going to be worse.
The entertainment conglomerate missed on both top and bottom-line street estimates, with its earnings being dragged down by closures in its parks & entertainment division and a lack of profitability from its new direct-to-consumer platform, Disney+.
DIS typically trades like a resort company amid economic downturns because of its sizable exposure to theme parks, but this time it’s different. Disney has a new secret weapon in the streaming space, and this global pandemic has put a tailwind into its sails.
Disney+ is growing like wildfire, with 54.5 million subscriptions in less than 6 months of its initial release. When combining subscriptions from all Disney’s direct-to-consumer service: Disney+, Hulu, and ESPN+, the segment has roughly 95 million global subscribers. Despite these streaming services limited international exposure, the combined services make up more than half of Netflix’s NFLX streaming empire.
Disney is a global household name, and its international presence in streaming is just beginning to heat up. With Disney’s library of nearly a century of recognizable content and low-priced subscription, it is going to be difficult for Netflix to compete in the markets abroad.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Optimistic Future ” data-reactid=”24″>Optimistic Future
Disney shares traded higher this morning, despite missing earnings estimates last night. Investors have already discounted the quantitative results for 2020 and priced in the inherent risk before last night’s results. We know that 2020 results are going to be bad, that’s why DIS is down roughly 30% for the year.
We are more concerned about timelines, then quarterly results. Park openings, resuming movie production & theatrical distribution, and Disney’s timeline to profitability for its direct-to-consumer segment are going to be this stock’s most decisive drivers in 2020. Right now, the company is aiming to turn a profit on Disney+ in 2024. Still, I think this could be conservative considering the incredible traction that the new streaming platform has already gained.
Parks have been the company’s primary bottom-line driver for years, but the future of Disney is in its streaming services as the world transitions away from cable.
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Disney’s earnings fell over 60% year-over-year this past quarter, but this may only be the beginning. Analysts are already estimating that this media conglomerate will post a negative June quarter EPS, which would represent the first time this company reported a negative bottom-line in modern history.
There is also no timeline for when Disney will reopen its parks domestically, but it is anticipating opening the Shanghai Park on May 11th, which will represent a trial run for how to successfully & safely reopen these magical theme parks.
Overall, the China park revival is good news for the business, but Disney may not open its domestic parks until a vaccine is available, which may be over a year away.
There is also no timeline for Disney resuming movie production, but I suspect that this will happen sooner than the park reopenings. There is still concern about how theaters will perform in the post-pandemic world. Thankfully, the business is partially hedged from this risk with its streaming platforms.
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Disney is far from out of the woods, and there is still an astounding amount of uncertainty in the business, but investors continue to have faith in this long-standing media giant. I am optimistic about the company’s future in streaming and will not hesitate to buy these shares if they drop below $90 again.
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