This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published on April 7.
Perhaps no company faces a greater existential financial crisis in the age of COVID-19 than Walt Disney Co., a legendary company built on social interaction that may find its newest business offers the most immediate relief.
Disney US:DIS faces adversity in its three core business units. The theme-park business faces the most negative impact: The signature Disneyland amusement park in California, opened in July 1955, is shut down for only for the fourth time. Disney World in Florida and its parks in Paris, Shanghai and Hong Kong are also shuttered. Disney Cruises is docked. Parks, experiences and products is Disney’s largest business segment, ringing up $26.2 billion in sales last year.
All live-action film production stopped in the company’s movie division, and the March 27 premiere of the big-budget remake of “Mulan” has been postponed to July 24 as most theaters remain dark across the country. Disney-produced movies, not including Searchlight Pictures or 20th Century, hauled in $1.54 billion in North American sales last year.
The TV side, where Disney’s media networks generated $24.8 billion in revenue last year, is equally vexing. While the company’s TV properties continue to air, there are no major sports scheduled for weeks, leaving Disney-owned ESPN with hours of airtime to fill. To partially fill the sports-less void, ESPN moved up the premiere for its docu-series on Michael Jordan’s 1998 Chicago Bulls “The Last Dance,” to April 19. It was originally to debut in June.
If that isn’t enough to unnerve jittery investors, there is the matter of Bob Iger. Last month, Iger announced he was immediately stepping down as CEO after 15 years and sliding over to head creative development. Bob Chapek, who headed parks, experiences and products, was anointed Iger’s successor. That division, the company’s biggest, brought in $26.2 billion last year.
While the entertainment empire teeters, Disney’s newest business and underlying diverse businesses offer short- and long-term hope.
Streaming service Disney+ could prosper with an infusion of fresh content. Disney+ takes on greater significance because the company has stopped production on live-action movies or postponed their release at the same time major theater chains like AMC Entertainment Holding Inc. US:AMC offer limited seating or shutter altogether. “Mulan,” for example, was expected to bring in between $80 million and $100 million during its opening weekend in theaters.
Disney is pushing movies that were already released to theaters to the streaming service faster than it normally would have, as it seeks to drive Disney+ subscriptions. “Frozen II,” which racked up $1.45 billion at the box office, was made available on Disney+ three months earlier than planned. “Onward,” the latest Pixar animated movie that debuted in theaters on March 6, arrived on Disney+ on April 3, after going on digital sale March 20. One of Disney’s planned theatrical releases, the sci-fi fantasy “Artemis Fowl,” will skip cinemas and go straight to Disney+ at a date to be determined. It was scheduled to be released in theaters May 29.
The availability of “Frozen II” on Disney+ is “less about per unit revenues, and more about driving subscriptions and satisfaction,” Wells Fargo analyst Steven Cahall wrote.
How the numbers are changing
Revenue: Average analyst expectations were $19.56 billion at the end of 2019, but have declined to $18.4 billion as of April 3. Estimates for each of the business segments — media networks ($6.69 billion to $6.62 billion); parks, experiences and consumer products ($6.58 billion to $5.97 billion); and studio entertainment ($2.97 billion to $2.73 billion) — declined, according to analysts polled by FactSet.
Earnings: Average analyst expectations were $1.20 per share at the end of 2019, but have declined to $1.02 a share as of April 3. Disney is scheduled to report its fiscal second-quarter results on May 12.
Stock movement: Shares of Disney plunged 33% in the first three months of 2020. Through the first half of March, Disney lost more than $85 billion in market value and its stock price slipped below $100 for the first time since October 2017, prompting one hyperventilating analyst to suggest it could be an acquisition target of Apple Inc. US:AAPL
What the company is saying
April 3: The Mouse House reshuffled its movie release schedule, pushing back “Mulan” to July 24 and the Marvel blockbuster “Black Widow” to Nov. 6 from May 1. “Eternals,” originally scheduled for Nov. 6, has been moved to Feb. 12, 2021.
April 2: The company announced employees would be furloughed as of April 19 due to the COVID-19 pandemic. “With no clear indication of when we can restart our businesses, we’re forced to make the difficult decision to take the next step and furlough employees whose jobs aren’t necessary at this time,” according to a statement emailed to MarketWatch.
March 19: In an SEC filing, Disney acknowledged COVID-19 has impacted so many of its business segments that it’s becoming more challenging for the company to estimate its future performance. Disney reported it could lose $280 million in revenues due to park closures in Shanghai and Hong Kong alone.
Coronavirus “makes it more challenging for management to estimate future performance of our businesses, particularly over the near to medium term,” Disney disclosed.
“We have closed our theme parks; suspended our cruises and theatrical shows; delayed theatrical distribution of films both domestically and internationally; and experienced supply chain disruption and ad sales impacts,” the company said. “In addition there has been a disruption in creation and availability of content we rely on for our various distribution paths, including most significantly the cancellation of certain sports events and the shutting down of production of most film and television content,” the company said.
March 17: Burke Magnus, executive vice president of programming and scheduling at ESPN, in a interview for ESPN Front Row: “Overall, any original content project that we can conceivably move up, we are obviously considering that, including films.”
On March 31, ESPN announced “The Last Dance,” its 10-part documentary series on Michael Jordan and the Chicago Bulls’ quest for a sixth championship in 1998, will air over five Sunday nights in the U.S., from April 19-May 17. The series will be available outside of the U.S. on Netflix.
What analysts are saying
• “We don’t think Parks can get back to anything close to full capacity until testing and/or vaccines are far more ubiquitous.” It could take up to 24 months before attendance “normalizes.” — Wells Fargo Securities analyst Steven Cahall, who downgraded Disney to equal weight from overweight, and slashed his price target to $107 from $155 on April 7.
• “Disney has been particularly hard hit by the pandemic, impacted across virtually every segment of the company.” — Guggenheim analyst Michael Morris, who downgraded Disney to neutral from buy, and whacked his price target to $100 from $160 on April 2.
• The company’s Parks, Experiences and Product segment “will bear the brunt of the impact” and “will likely be extended into Disney’s fiscal third quarter, significantly reducing revenue and increasing operating losses.” Disney’s Media Networks business will “experience advertising revenue declines stemming from the cancellation of professional and college sports leagues.” Finally, Studio Entertainment segment revenues “will decline reflecting the disruption of the theatrical exhibition window.” — Fitch Ratings, which lowered Disney’s rating outlook to negative on March 18.
• Pushing back “Black Widow” indefinitely could have a “cascading effect” on the rest of the so-called Marvel Cinematic Universe releases. — Shawn Robbins, chief analyst at Boxoffice.com
• Could Apple consider acquiring Disney? Rosenblatt Securities analyst Bernie McTernan suggested it on March 13.
“We believe those with long-time horizons, like mega-cap companies with large cash balances and whose equity outperformed Disney over the last three weeks, like Apple, could take advantage of the volatility,” McTernan wrote, noting at the time that Disney’s market capitalization was approximately $165 billion while Apple was flush with $107 billion in cash and securities. “The upside from acquiring Disney would be securing their content/streaming strategy and potential synergies from adding the emerging Disney ecosystem to the iOS platform.”
“Disney+ has the potential to be the unifying force creating a Disney ecosystem between segments,” he wrote. “Ultimately, we believe Disney will benefit from the Disney+ customer relationship driving more sales of parks and movie tickets, and streaming service subscriptions. Apple generates similar benefits from their iOS ecosystem, and we believe there could be synergies from combining the two.”
Apple had no comment.
• “There is potential for a significant economic hit to Disney if the closures last beyond June, but we expect the park closures and cruise ship suspensions to be a temporary disruption, hurting margins and adding to the $175 million operating income hit to the segment for the parks closed in Shanghai and Hong Kong earlier this year.” — Moody Ratings’ Neil Begley
Disney has enough cash to weather the disruption, Begley noted. Disney has $12.25 billion of revolver capacity, presently undrawn except to backstop its outstanding commercial paper, and it has a sizable cash balance. “We also expect the company will endeavor to control costs, delay capital expenditures and pay significantly lower taxes for fiscal 2020,” he wrote.