Entering text into the input field will update the search result below

Disney's Stagnant Year Ahead

Mar. 09, 2020 3:08 PM ETThe Walt Disney Company (DIS)52 Comments
Ash Anderson profile picture
Ash Anderson


  • Disney will, at best, have a stagnant year thanks to the coronavirus.
  • Worst case scenario is still up in the air. If things continue to get worse on the virus front, Disney may have serious issues to face this year.
  • Studios were set to have a worse year without virus concerns. Those concerns now multiply issues in that segment.
  • The Disney+ segment will hit $20B in revenues, but will still have operating losses.

Just over a month ago, I had another Disney (NYSE:DIS) article published on Seeking Alpha. I was bullish on the stock, and I had no real concerns for the future, things were looking great. I wasn't completely ignoring the COVID-19 risks, but I think I might have vastly understated them.

At the time, Disney estimated the costs as a result of the coronavirus to be in the realm of $175M. A good hit, but for a company with operating income close to $12B in 2019, manageable. Now, however, I think investors should have cause for concern. The hit will, at a minimum, leave Disney with no growth in 2020.

A Breakdown of Disney's Revenues

Image: Information from Disney 2019 10K

The chart above offers a breakdown of Disney's revenues. A combination of coronavirus fears, park closures, cord-cutting, and a much slower year at the box office will leave Disney sitting stagnant this year. Their only saving grace, direct-to-consumer.

Park closures and general public fears about going to parks will result in the parks segment giving up more than half of its operating profits when comparing FY20 to FY19. Cord-cutting is also accelerating, and Disney has a smaller box-office slate this year. That smaller slate comes at a time when countries, like China and Italy, are closing cinemas as part of quarantine procedures.

Park Closures & Cruise Reductions

Image: Information from Disney 2019 10K

Last year, Disney generated roughly $19.8B in revenues from Parks & Experiences (leaving park licensing aside -- Tokyo Disney). While U.S. parks are currently alive and well, Disney parks in Hong Kong and Shanghai remain closed with no signs of reopening.

Disney cannot let all the staff go, and must incur at least some costs to maintain the parks, hotels, and related experiences. However, revenues have sharply dropped to, or near, zero. The parks will

This article was written by

Ash Anderson profile picture
I am a Software Engineer by trade and an avid market participant. Traditionally a long-only investor, I use home-grown software to find the best companies at the best prices. My investment philosophy is primarily high-quality firms. Firms that hold a significant advantage in their market, or demonstrate the ability to get to the peak. Software is my area of expertise, so my writing will frequently cover those in that sector. I also cover stocks that I consider to be high-quality, and investable that are outside the software world.Fans of video, please check out my YouTube channel where I also cover finance and stock research at youtube.com/ashanderson1

Analyst’s Disclosure: I am/we are long DIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (52)

Buying Disney shares is a cheap way to own Apple shares once Apple announces they are buying Disney
Truth_AndMovement profile picture
In at 108. Will hold this for decades.

This legendary company will live long after we're dead. And if we see lower prices than this, i'm buying all the way. Disney+ will take over. And the parks will all be open again very soon.
Disney+ will cannibalize other revenue streams, yes. But shouldnt only disney+ be valued to a market cap higher than that of netflix? After all, almost zero efforts gave nearly 30m customers. In a few, say 5 years, Disney+ will have say 300m customers, and the disney+ margins will in the end be close to 90%. Either Netflix is overvalued, or Disney is undervalued. I believe both are true. I have ended my Netflix contract now, and also several that I know (anecdotes, I know) have done the same.
Ash Anderson profile picture
The problem this year, and likely next, is that Disney is financing the rollout of Disney+ on the back of an already great business. That business produces cash flows so Disney doesn't have to raise billions (on top of their other hefty pile of debt) to finance content. With that business under fire from the coronavirus, things may get tough.
5 yrs to 300M? LOL. What are you smoking. Disney+ will never get to 300M by the way, it's a niche PG 13 service.
@yellowpage Maybe you are new to Disney, but remember when they aquired Marvel? The idea was that they wanted to fill the gap 0-30 for males and females. After 30 you get children. Before Marvel, they hadndt filled the gap 12-30 years with any content (all other gaps filled). 

Disney have relevant content for almost everyone (even the weirdos like star wars) between 0-30, that is the idea with their business model. The fact that they so easily got 30m customers to disney+ surprised even the bulls. I think Disney+ and Netflix in say 1-2 years will have the same amount of subscribers. Everyone with children soon want to have disney+, all marvel fans, all girls that wants to see teen movies, nat geographic fans etc etc.

I took a position yesterday in disney, so I am biased :) btw, I was a super bull when netflix was at 60, even though SA was most filled with a very bearish sentiment.
Red Pill Investing profile picture
Anyone know what fcf is expected this year my
Biggest problem is the 38 billion debt and the last 2 years of 500m fcf it’s scary low
Ash Anderson profile picture
Good, but tough, question with things changing daily. With the Asian parks closed, and likely reduced demand later in the year domestically I think they're walking a very fine line to stay cash-flow positive this year.
Red Pill Investing profile picture
Yup that’s why they are off my wish list to much debt to little fcf
Wow - i would be interested to know what you know relative to consensus which forecasts close to $6.5bln in FCF this year. Last year unlevered FCF (cash from ops - capex) was $1.1bln but was impacted by the 21st CF acquisition (both in terms of lower net income and non cash amortisation related purchase price accounting). In 2018 unlevered FCF was $9.8bln. 2020 is back to a more normal conditions in terms of non cash amortisation and changes in operating assets so cash from operations should be in the vicinity of 12bln and capex of about 5.5bln - gives FCF of 6.5bln. For these guys to not generate FCF this year would be a major surprise imho.
perplexedtex profile picture
The theme parks charge too much money. Families that used to come for 5 days now only come for one and then go to other nearby attractions.
Yuppp profile picture
DIS Jan 2022 LEAPS calls - inexpensive 2 year runway to rent the stock until Corona means beer instead of fear.
T3SLA profile picture
I don't think Disney will take much of a hit in their box office. Their movies are aimed at under-30's, who won't avoid anything over this phony pandemic...
Their parents do. And they are the ones buying tickets.
Senryu profile picture
Phony pandemic? you have drank your own brain sir, you're underestimating the threat. Get better information sources because you've been misled
Under 30’s didn’t want to be in a theater before this. They won’t be back for two years. Parks in US might have to close for a few months. I sold today. I’ll check back after updated guidance.
Bury7 profile picture
09 Mar. 2020
DIS is very undervalued right now considering streaming growth, this crisis will be shorter than it seems right now, this is not the 13th century, a vaccine will be on shelves in less than a year, even if Europe and US parks will get shut for a while ,as soon as they reopen, or even at the first glans of positive news, investors won't need to wait for full capacity to drive the stock back up, cause they know the potential. DIS is a must stock for long in every portfolio and will outperform the market for the net few years
I disagree. the steaming business has already been priced in the stock when they launched it but they will cotinue to lose billions to make context; hence hit their bottom line. Now that their theme park will also be slow this year, market is pricing in a bad season.
Are you clueless?!? A vaccine will take 12-18 months just to be approved. So explain to me how when one doesn’t exist yet it’s going to be able to use in less than a year?
Bury, I think you will be right.
Basit Saliu profile picture
Big 12 media congloms (prediction) between now and 2022:

1. Disney
2. NBCUniversal (Comcast)
3. WarnerMedia
4. ViacomCBS (acquired by Verizon or Apple)
5. Entertainment one (Hasbro
6. Discovery (buyout All3Media- a television production group with 28 prodcos)
7. enlarged Verizon Media (Verizon)
8. WildBrain or Thunderbird Entertainment (acquired by Activision Blizzard)
9. Canal+group (Vivendi)
10. Sony Entertainment (Sony)
11. 9 Story Media (Take-Two Interactive
12. Bertelsmann

Honorable Mentions:
1. Sinclair Broadcasting Group
2. Fox Corporation
3. Meredith Corp.
4. Charter
5. Koch Media (Embracer Group)
6. Nexstar Media
7. Gray Television
8. ITV Plc
9. BBC
10. Virgin Media (Liberty Media)
11. Leonine Holdings
12. MGM
12.1 Mattel

Content is everywhere and it is king couple with Distribution.
Carles Diaz Caron profile picture
Just added Hasbro to my portfolio. These prices are very appealing considering the recent acquisition of Entertainment One. Very big potential there.
Basit Saliu profile picture
i know right... Goldner is building a mini-Disney with film production including Allspark, the classic Momentum Pictures studio (p.s i love you, king speech etc) and television producers such as Mark Gordon Co. (criminal minds, grey's anatomy), then there is eOne music which is fourth biggest music label in the world after Universal Music, Warner Music, and Sony Music. Hasbro could make toys from eOne library and also produce films and tv shows through the latter. great vertical integration. I can see a My Little Pony music raking up millions of views Youtube.
CALgoBears profile picture
What about Lionsgate? Before the Coronavirus, rumors of Apple or CBS was looking to purchase it
Q/ Did the 1918 Spanish Flu sink Coney Island ? Or, bankrupt Cunard Lines ?
DIS is better than CCL.
Domestic parks are going to be next. I would be cautious with adding now. The bleeding is in it’s early stages.
I didn't invest in Disney to cash out in 2020. Once coronavirus and recession fears (or an actual recession) are over, DIS will come roaring back.
Yeah great. Disney will come “roaring back” to a $150 a share stock price in 2025. The same price the stock was in 2019. The same stock that traded for $115 a share in 2016. What a great investment!
Come get me if the S&P gains 50% sooner than DIS.
Shanghai Park is already reopening gradually.
jjsbadrobot profile picture
opening doesn't mean instant park capacity levels.

at least it's open... for now.

didn't they just change CEOs?
Must say Iger chose a perfect timing for stepping down as CEO to keep his legacy intact.
Dis is a great company and will be just fine long term. However, I don’t see Dis as a being significantly undervalued here and the question as to whether to buy Disney is not binary. The question is what stocks provide the best risk adjusted returns going forward and, this point, dis doesn’t quite make my list. Maybe soon. Best to wait and see at this point imo.
What does make list right now?
Disney is a buy for anyone not trading and simply holding for long at these levels.
Basit Saliu profile picture
Disney will be fine...they are the biggest media and entertainment company in the world.
Stagnant?!? I WISH Disney would be stagnant this year! This company is going to lose half of its value from the start of the year. It will take several years to just get back to the where it was a few months ago at $150 a share. I hate stocks. Worst decision of my life to invest in stocks instead of sports cards. Everything big in cards has gone up several times over just 2-3 years. From the end of January every major card of every major collectible player in the NBA has gone up 75% to 3 times. That is in weeks. Countless sealed boxes from 3 months to 3 years ago are selling for 2 to over 10 times what they were when they came out. And I sold everything for cheap to invest in this garbage bs racket of the stock market instead of holding the sealed products. Fml
TheEnterprisingInvestor profile picture
i wish we could give awards. best comment ever
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.