Disney: Challenges Galore

Disney's (DIS) operations have been hampered amid the COVID-19 pandemic forcing the shutdown of its cash-generating theme parks business. The stock price also tumbled a third of its value at its bottom before recovering post-March as the broader markets staged a smart recovery. However, the stock has overwhelmingly underperformed the broader markets with S&P almost a shade below its February peak levels while Disney's price still down a fifth from its peak. 

Data by YCharts

In addition, the company announced a massive 90% drop in profit in the second quarter and also announced a profit warning highlighting that the worst may not be over yet. I have also been wary of the company's prospects and have advised investors to avoid the stock.

But has things changed since then? Alas, for the entertainment company the problems continue to mount. On one hand, the company opened its Orlando theme park just on the day Florida reported the highest single-day cases by a state across the US since the beginning of the pandemic while Hong Kong theme park was closed few days after its opening. Disney's theme parks which usually bustle with activity enough to turn away their customers on busy days are scrambling to have at least some footfall to be able to cover costs. Also, there seems to be no sight of when the theaters will actually reopen which were expected quite sooner when Warner Bros defiantly reaffirmed the release date of Christopher Nolan's 'Tenet' on July 17. However, since then they have to bite the bullet and recently announced that the release has been postponed indefinitely. This invariably impacts the release of Disney's summer movie Mulan which was postponed for release until August. Also, the sports heavy brand of ESPN remains starved off any sporting event happening across the globe.

The only silver lining for the company, however, remains the launch of Disney+ which has received some traction with the people staying at home. Since launch, the streaming platform raked in over 50 mn subscribers, which is a commendable feat. However, even that is bogged down by production problems. And apart from that, the cash burn is likely to be high as it competes with the likes of Netflix and other OTT platforms to grab and hold on to its subscribers. Given the continued struggle in the cash-generating Theme Parks business which is unlikely to return to pre-pandemic profit levels soon, a continued resurgence of COVID cases as well as challenges in the production business, the stock continues to be under pressure. We remain watchful of the Q3 results to be announced in the coming weeks, which would again is likely to be a washout one. We look forward to management's commentary around Theme park's business as well as on production side going forward.