<p>Disney (NYSE: DIS) has had a rough start to the week on the news that it covers 100,000 employees and its theme park closures could last until 2021. Putting salt on the wound, this bleak outlook comes just before the company reports the results on May 5. So with DIS stock down 4% at the beginning of the week, should anyone consider taking a piece of it now?
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To be fair, not all the news has been bad for Disney in recent months. While the stock declined by 31% the year after the new coronavirus pandemic put it – and countless other stocks – through the spinner, it still managed to show signs of long-term promise among the carnage.
For example, the DIS stock saw a slight increase earlier this month thanks to the success of its Disney + video streaming platform. The streaming service quickly became popular before the virus hit, and with so many stuck at home, it has continued to show strength.
In fact, Disney + “[racked] up to 50 million subscribers in five months ”- an impressive achievement that helps strengthen its position among key competitors in the area such as Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL).
Disney + Success is not the only thing to think about
As someone who has never been to Disney World or Disneyland, it’s easy for me to forget that Disney is not just about healthy family programming and its countless classic princess movies. I think many potential and bullish investors are also looking beyond the theme parks.
After all, it’s easy to get caught up in the hype when you see its shiny new streaming service go head-to-head with the likes of Netflix among widespread home conditions. But, like it or not, the theme park’s side of its business is also a key component … and an important factor in whether to buy DIS shares.
It’s no secret that Disney’s theme park revenues would be affected by closures, but the exact length of these closures is still a mystery. And any negative projections will certainly hurt the stock price along the way.
The fact that the company is behind “almost half of its workforce” suggests that its operations here may not be up and running anytime soon. But the latest entry into the DIS share comes from analysts’ downgrades of UBS and Credit Suisse in connection with the latest news. UBS analyst John Hodulik lowered his stock price target by 29%, from $ 162 to $ 114, on forecasts that “parks will remain closed until early 2021.”
This projection is even more worrying when you consider that Hodulik does not expect the presence to be anywhere near 100% after reopening. If he is right, the presence could eventually reach 75% halfway through 2021 and cause the company significant financial damage. Combine this with the fact that advertising revenue (belonging to Disney +) is down and the company has delayed the launch of many of its feature films, and it’s no wonder why Disney is in the dog house right now.
All of this does not even affect its suffering ESPN division, which is heavily dependent on live sports to succeed. While this part of the Disney pie had fought long before the coronavirus pandemic, it’s having an even tougher time now.
In a world that lacks live sports events, ESPN will in any case broadcast Hafthor Björnsson’s world record 501 kg deadlift attempt live on 2 May.
The conclusion on DIS stock
I want to repeat that this is not the apocalypse for Disney. It’s just a time of great change.
There will likely be many more Marvel superhero movies in the future and lots of kid-focused movies. Not to mention a lot of other movies and mega-franchises like Star Wars on the way. All of these will eventually reach Disney + in one way or another, and that platform is likely to continue its impressive growth. I expect that we will see many of those who signed up during the pandemic keep their subscriptions.
The Disney + platform also offers the company a way to reduce some of the potential losses caused by its delayed movie releases, and the company is considering using its streaming service to debut some of its movies instead. This in turn can further increase the number of subscribers.
The most important thing I would think about, here and now, then, is that even if DIS stocks are not necessarily judged like any other names we know, there will be a lot of pain and uncertainty in the coming months. As such, I suggest that you wait at least until its earnings report on 5 May to get a sense of how extensive the damage may be. From there, investors can form stronger investment decisions to either buy or sell Disney shares.
Robert Waldo has been the web editor of InvestorPlace.com since 2016. At the time of writing, he had no position in any of the above-mentioned securities.