<p>Both Walt Disney (NYSE: DIS) and the S&P 500 have collected more than 17% from the bottom. However, the DIS share fell almost 45% from peak to valley, while the broader market fell almost 35%. In other words, while both have performed similarly from low levels, Disney shares still look worse than the overall market.
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For investors, this is a difficult truth to swallow – but the Disney stock deserved such a painful sale. In some ways, it is fair to ask if more pain should be on the way. The situation from the new coronavirus has been bad and it could get worse.
But eventually it will get better. And when it does, DIS stocks will be a slam dunk.
Coronavirus Vs. DIS bearing
Why did I say that “maybe more pain should come?” Simply because Disney has too much exposure to the virus.
More than 36% of the company’s revenue is linked to parks, experiences and products. With Disney parks closed and cruise ships stuck in port, all of this additional revenue is now non-existent while some costs are still present.
Revenue from media networks accounts for approximately 35% of Disney’s sales. It does not take a full hit, but it will be under pressure thanks to ESPN. The unit accounts for about 40% of segment revenue, and without live sports, it is definitely suffering. Some events like the NFL draft received a warm welcome, but that does not compensate for the void in the sports world.
Finally, studio revenues will be hammered. With so many theaters closed, Disney has had to postpone production, film and plan releases of new movies. It will give a quick blow to the top and bottom line. 2019 was a record year for the studio unit, which accounted for almost 16% of total revenue last year.
Between these business units, we talk about about 87% of Disney’s total revenue. So when you look at it this way, it’s easy to see why the DIS stock has sold off and it’s rational to think that more downside may come.
Disney, however, has strengths
First, the company’s acquisition of Fox was enormous from a strategic point of view. It helps diversify revenue from its media networks and reduces its dependence on ESPN programming. Second, Fox content is an additional driver for Disney + content. The deal will pay off longer, but is likely to help ease the pain and drive growth in the short term.
Speaking of that growth, Disney + has taken in 50 million global subscribers in less than six months. To make the performance even more impressive, the platform launched in the UK, Ireland, France, Germany, Italy, Spain, Austria and Switzerland. In turn, these countries should add the runway, which provides more growth in the meantime.
When Netflix (NASDAQ: NFLX) reported a result, subscriber growth of 15.77 million almost doubled analysts’ expectations. With this in mind, I expect that the dynamics will also be strong for Disney + – which helps to accelerate an important part of the business for its long-term strategy. That said, Netflix management said they expect growth to slow as the pandemic cools and home orders are eased. But it did exactly what Disney needed, speeding up registrations and driving growth faster than expected.
Finally, the company still has Bob Iger. While resigning as CEO and taking on the role of CEO, he is still with the company and reportedly, back to work as a leading Disney. It’s been a rocky transition, but having Iger on board should help keep Disney pointed in the right direction. The company already has about half of its employees, which should save about $ 500 million a month.
Conclusion on DIS bearing
At the end of the day, DIS stocks have far too much exposure to coronavirus. However, Disney will survive the pandemic – even if it takes a hit right now.
2020 is probably a wasteful year for the company. The results will be terrible, with sales, earnings and margins under pressure. But with a build-up of movies in the studio department, refreshed demand for live sports and events and an accelerated streaming video platform, Disney will emerge on the other side with years of solid growth.
Matthew McCall left Wall Street to actually help investors – by getting them into the world’s biggest, most revolutionary trends FOR anyone else. The power of being “first” gave Matt readers the chance to bank + 2,438% in Stamps.com (STMP), + 1,523% in Ulta Beauty (ULTA) and + 1,044% in Tesla (TSLA), just to name a few . Click here to see what Matt has up his sleeve now. Matt does not directly own the above-mentioned securities. D