Disney Stock: Trouble in the House of Mouse?

If you are looking for a business that is being negatively impacted by the coronavirus in multiple ways, look no further than Disney NYSE: DIS. In the past, many investors bought into Disney’s tried and true business model and were rewarded with steady dividend payments and solid earnings growth over the years. These days, the house of mouse is really feeling the pain of the current economic conditions. Some think that Disney is a great buy right now as it’s decreased about 30% from it’s February highs, but that doesn’t necessarily mean that more downside is not in store. Let’s take a deeper look at how Disney is being affected by the coronavirus and whether or not it’s worth a look for your portfolio.

All Theme Parks Remain Closed

One of the biggest revenue-generating components to Disney’s business is its theme parks. Parks like Disney World and Disneyland usually bring in millions of visitors every single year and have been a family vacation staple for decades. Unfortunately, all of Disney’s theme parks have been closed indefinitely as a result of the global health crisis. Analysts are anticipating that it might even take 18-24 months for the parks to achieve pre-pandemic foot traffic. This is terrible news for Disney shareholders, with some analysts even anticipating that all of their theme parks remain closed until 2021.

Even after the parks reopen, it’s hard to imagine a scenario where attendance levels quickly get back to their levels prior to the coronavirus outbreak. Although Disney is an iconic brand that will always attract visitors, the reopening of the parks will be a gradual process that might really impact the company’s bottom line over the next several quarters. Disney reports their first earnings numbers since the health crisis began on May 5^th and will give investors direct insight into just how bad the financial damage is going to get while the theme parks are closed.

Live Sports and Content Production Halted

Another important component of Disney’s business includes its ownership of ESPN and several famous movie franchises. Unfortunately, this is even more bad news if you are looking at Disney in the short term. All live sports are currently on hold as the world tries to get the coronavirus outbreak under control. Even when the economy starts to reopen, it’s fairly certain that large group gatherings like sporting events will be one of the last facets of normal life to return.

Additionally, the major movie franchises that have brought in billions for Disney over the years are another cause for short-term concern. Production on these movies is at a standstill for the time being and major premieres originally scheduled for the spring and summer have been moved to later dates. Keep in mind that movie theaters are closed at the moment, which means that even if Disney were able to release new Marvel, Pixar, or Lucasfilm content, people would not be able to pay to see it. This is more of a short-term problem for Disney since we know the demand for live sports programming and new entertainment content has not decreased.

Big Changes & Internal Issues

Many Disney shareholders were caught off guard when long-time CEO Bob Iger announced he was resigning and being replaced by the head of parks and cruise lines, Bob Chapek. Although Iger is still working as Executive Chairman for Disney, it’s safe to say that there is uncertainty about his successor’s vision for the company going forward. CEO changes are always interesting to see play out, especially when someone as iconic as Bob Iger leaves. Some might view the CEO switch as a cause for concern, but only time will tell. For now, it’s just another uncertainty for investors to process.

Also, it’s worth noting there have been several internal issues involving one of the Disney heiresses. Abigail Disney recently called out executives at Disney for furloughing 43,000 employees while $1.5 billion in executive bonuses remained on the table. This isn’t the first time that Abigail has squabbled with management, and any time you see these types of internal issues for a major corporation, it can be a red flag. The bottom line here is that CEO changes, internal conflicts, and public relations issues usually cause for concern.

Short-Term Pain for Long-Term Gains?

It’s safe to say that Disney has never faced a situation like the current one. Literally every component of their business is being negatively affected by the coronavirus in some way. We didn’t even touch on their cruise lines, which is an industry that could be in major trouble going forward. There has also been a flurry of analyst downgrades for Disney recently even with some optimism surrounding their streaming platform Disney Plus.

If investors are looking to pick up some shares of Disney, they must understand the risks that will undoubtedly affect company earnings in the short-term. With so much uncertainty surrounding Disney’s business, be cautious of opening new positions, and stay patient until the market can price in the impact of the coronavirus on their corporate earnings.