Disney's Stability May Have Taken A Hit, But Could Rebound By Summer

Summary

• Disney’s 2020 has gotten off to a rocky start with the sudden resignation of topper Bob Iger and continued last weekend with the under-performance of Pixar's “Onward”.
• The film had the lowest opening debut in Pixar's history sparking fears that it was a sign of audiences being afraid to go to the movies due to COVID-19.
• In reality “Onward” under-performing is a reflection more of the film and it not resonating with audiences.
• Disney’s next film, its live-action remake of “Mulan,” is an even bigger gamble for the company, but early reports are suggesting it could be a sleeper surprise.
• Regardless, the studio has a summer roster that should prove to be a stabilizing force as Disney looks to rebuild the momentum it built over last year.

(Image Credit: Disney/Pixar)

Disney’s (NYSE:NYSE:DIS) had an interesting 2020 so far.

Although granted for how well its 2019 went, you’d think there was a ceiling even for a company known for its own brand of magic. Truthfully, nothing can continually sustain such a high level of success for so long, eventually, things come back to Earth. Now that’s not to say 2020 won’t end up being a banner year for the house of Mouse, but it’s going to take some time for it to go onwards and upwards.

Granted “onward” may be a trigger word at Disney this week as the company’s latest entry from its Pixar division did not have a good week.

Like a "worst opening for any Pixar movie thus far" type of week.

A film that was projected to land in the $45 million to $65 million range, the animated family flick fell just short of $40 million ($39 million). That takes it below The Good Dinosaur which in 2015 found itself with $39.1 million over three days and $56.6 million over the full Thanksgiving frame. While Dinosaur was seen as Pixar’s first real flop, it definitely helps to exit your first week with padded numbers due to a holiday.

Of course that was by design.

Dinosaur was originally supposed to be a summer 2014 release until Disney realized it had a problem on its hands and decided to basically go back to the beginning. Onward didn’t have that type of luxury and Disney really didn’t do it a lot of favors with its release date.

For whatever reason, shareholders may have noticed (by this point) that Disney tends to have a “feast-or-famine” relationship with the spring season.

While it’s had big success with films like Zootopia and the live-action Beauty and the Beast and Cinderella, this is the same frame that saw John Carter, Dumbo, Muppets Most Wanted and Mars Needs Moms derail momentum. Note, Marvel films are not being looped in here as they are their own beast entirely and play off their own rules.

The point though is that Onward had a rough go of it but this really shouldn't be that unexpected – which is important for investors to understand. Right now, with Coronavirus fears running rampant, it needs to be said Onward under-performing had little to do with audiences not wanting to go to theaters.

This should in no way shake your confidence in the film industry or even Disney.

Onward’s lower total is because of a myriad of factors including that it was an original Pixar film (and not a sequel), its marketing did not make it clear enough it wasn’t just a “kids” film and it didn’t capture attention the same way past Pixar movies have with audiences (even its YouTube trailer is one of the least-watched).

Overall though, the short-term future should paint a clearer picture.

This weekend will boast four new releases and while I have little expectation any of them will over-index (or potentially even break double digits), there will truly be something for everyone.

It is a situation where the sum of its parts will be greater than any individual achievement (i.e. the higher the overall total gross, the more it shows consumers are not staying at home). This will then lead into the Quiet Place sequel which should give the box office the boost it needs.

And then all roads lead back to Disney and its live-action Mulan.

I’ll be honest. I initially had concerns about his one. Forgetting about the China/COVID-19 component, this is not your typical live-action remake that Disney has done so well. It is not a musical, there are no sidekick CGI characters and it’s the first of these adaptations to earn a PG-13 rating.

That’s a dangerous combination and opening weekend projections are everywhere from $50 million to $80 million – which goes without saying is a big range. Now it’s also true those factors could also work in its favor and push it over the top. Being non-traditional is a big allure to audiences and the movie targets a brand new audience and demo that doesn’t usually get this type of attention.

If you look at early buzz that scenario looks more and more realistic as the first round of reactions from screenings is very positive - with some saying it may be Disney’s best live-action adaptation yet. At this point and with the COVID-19 factor in play, it really is too early to tell but after Onward investors have to ask if it is a risk they are willing to take.

All of this combined - the sudden exit of Bob Iger, the under-performance of Onward, the rising COVID-19 fears and its possible impact on live events and film - has created this very real vacuum that is slowly consuming investor mindset around a powerful brand.

Even influential analysts are sounding the alarm anticipating the Coronavirus outbreak will shutter Disney parks Stateside as it has internationally. The prediction comes as it was reported that despite air travel being down, flights to Orlando are seeing a boost.

Now, it's entirely possible Disney opts to shut the US parks down for an extended period of time but for the moment, there are no firm indications it is imminent.

For that reason and the overall uncertainty of the situation behind it, I'm opting to look more at Disney's core unit. On the film side, while some studios are looking to move tentpoles (i.e MGM), I don't see Disney being one of them. To go further and make a prediction about an area like the parks, which is impacted by something that is literally changing every day, wouldn't really do a lot of good to investors.

The main takeaway though should be that experts and long-time shareholders have learned not to count Disney out. This is a well-rounded company that is not putting all of its weight behind just one area. Between streaming, theme parks, studio and TV, it has the ability to lean on other divisions when one needs support.

Again, theme parks concerns notwithstanding, on the main product side, even if Mulan does trip up, Disney will stabilize with Marvel’s Black Widow and the star power that comes from Dwayne Johnson whose Jungle Cruise docks in theaters this July. The two of those paired with Pixar’s Soul, which was purposefully held for a summer debut and has a strong early buzz to it, could easily reverse course.

Investors need to remember Disney is still writing the first chapter of its 2020 and sometimes even a juggernaut needs some time to find its footing.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.