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Disney's Still Shining Bright

May 07, 2020 2:51 AM ETThe Walt Disney Company (DIS) Stock44 Comments


  • The management team at The Walt Disney Company reported financial results for the second quarter of the company's 2020 fiscal year.
  • The real pain will come in the next quarter, but the firm did reveal that it was impacted by the COVID-19 crisis.
  • Even so, Disney's results were robust and some parts of the firm are doing remarkably well.
  • These are short-term bumps along the way to prosperity for long-term investors in the business.
  • Looking for a helping hand in the market? Members of Crude Value Insights get exclusive ideas and guidance to navigate any climate. Get started today »

The Walt Disney Company (NYSE:DIS) has proven over time that it is one of the greatest companies in the history of the world. The firm, unlike most other businesses, has created a tremendous ecosystem of value where almost every segment funnels opportunity from it to another segment. Case in point, movies lead to shows, which lead to toys and other memorabilia, which lead to theme parks, and licensing and streaming revenue. The list goes on.

Prior to the era of COVID-19, it was unthought of that the company could be hit hard by any outside event. Even during the 2008/2009 financial crisis, the conglomerate fared well, reporting a decline in sales in just one year over that period of 4.5% and a drop in operating cash flows of 6.7%. And that was during the worst downturn the world has seen since The Great Depression. COVID-19 has revealed that the company is not immune to a different kind of crisis, though. This was made clear in the firm’s second-quarter earnings release for its 2020 fiscal year. Moving forward, investors should expect some pain to come from the enterprise, but what really matters is the long-term picture, which should be fine.

Things could have been worse

To understand just how much Disney has been affected by the COVID-19 crisis so far, we must first understand where a sizable portion of the company’s revenue and profits come from. Last year, around 37% of the firm’s sales and 40% of its segment profits (the latter excluding the money-losing DTC & International segment and both excluding the impact of eliminations) came from its Parks, Experiences & Products segment. By sales, this segment is the company’s bread and butter, while by profits it stands only second to Media Networks.

Due to the spread of COVID-19, Disney’s management

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This article was written by

Daniel Jones profile picture

Daniel is an avid and active professional investor.

He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein. Learn more.

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.

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Comments (44)

I am long DiS and down quite a bit. I would have thought they would have at least some sort of insurance against park closures since they rely on them so much for revenue. Something like, if parks stay closed longer than a month due to natural disasters or pandemics, then the insurance would kick in, but nope. I think DIS will come back from this but they are so focused on the universal details that all businesses face and not the larger picture that it irritates me. Wear masks, take temperatures and hand sanitizer vs. how to make up for revenue shortfalls in case this pandemic goes on for years or another new pandemic surfaces? They need to work on more animated series/movies for DIsney+ so that content can be worked on without worrying about getting sued by actors or crew, or not being allowed to film in certain locations. Hey, documentaries are great, but thousands of documentary hours, maybe not so much. The cost of productions overall needs to be reduced, less focus on unnecessary CGI, de-aging actors, removing tattoos, etc.- much of this can be handled at the script/casting level. And the marketing costs. Why does it take a box office return of 2.5x the budget of a big movie to just breakeven, for the largest media company in the world?

And ride design at the parks, if a ride breaks down everyday, something is fundamentally wrong with the design. This daily maintenance and downtime adds to costs and customer frustration. While parks are closed, they need to fix these issues. Management should not just assume everything will go back to semi-normal in 6-12 months. What is gonna make up for that lost revenue from forced capacity reductions in the meantime? With tons of people unemployed, I don’t think jacking up the ticket prices will work this time.

Supply chain, get the f out of China, Hasbro. This everything China drama is not going away anytime soon. Once they start making “The Child” plushes again, it takes a month by ship to arrive in the States. Who’s to say they won’t need to shut down production again? And god forbid there is a recall. Speaking of China drama, they should just shutter Hong Kong Disneyland rip the band aid off and write it off, Hong Kong can use the land for housing. This political battle is not going away even if China were to back off and Carrie Lam resigns.
Brian Chilton profile picture
I tend to agree with you view. But as a longtime shareholder and fan, I am absolutely gobsmacked that Disney is paying full broadcast licensing fees to all the extremely expensive sports leagues currently not playing, and some, like NCAA, who will not play even partial seasons or championships for spring seasons and perhaps fall. Disney must have the world's worst lawyers and negotiators if their contracts for billions in broadcast obligations did not include a clause saying "You don't play, we don't pay."
So many bears. FL opens, squeeze begins.
I was very surprised that Disney was not down 7-8 % yesterday when it opened. in fact, it actually opened higher and went to 102.50 or so and that is where I sold my entire position. I have held it for awhile so I made money selling at this point. I think it will be several years before the park and cruise revenues come close to what they were previously. I would imagine the costs will be greater also because of all the precautions that will need to be in place. I can't imagine a Disneyland with children in masks and not being able to interact with the characters walking around in the parks as my children did. I think the Disney brand will still be prominent and the Disney+ will certainly increase membership. this doesn't bring in near enough revenue to replace the rest with the extremely low price point. espn also will continue to suffer until live sports resume, who knows when. eliminating the dividend wasn't the final straw but I at least got something for waiting for the business to rebound. I will likely buy back in if it goes down to the 70 dollar range, which I think is very possible after next quarter results come out. the premium that this stock holds will soon start to whither away, especially if people consider that the dividend cut may mean balance sheet problems. bought some emerson electric and waste management with the proceeds from my sale.
So, I'm not a clairvoyant, but I firmly believe we will be able to buy it lower.
DIS, is a great company long term the stock will rise. Until the virus dissipates DIS, will have to navigate a rough sea.
The latest result only showed 2 weeks of shutdown.
The adjusted eps plunged from 1.60 to 0.65.
They have to move fast and release their movies online. Get all the revenue they can.
Yesterday I viewed a slideshow of changes that will exist in Disney World when it finally reopens. If true, it is extremely disheartening and suspension of the 1H dividend is only the beginning, The park that this slideshow depicts would scarcely be at the top of any child's "Make a Wish" list and I'm unsure if streaming alone can ever compensate for the loss of revenues. And loss of parks revenues is only one of Disney's looming problems.

Am hanging in for now.

Long: DIS.
Andreas VT profile picture
Thank you for the nice article. I hope people will selloff this gem, so that I can buy even cheeper. But so far, the stock is pretty resilient, so I decided to buy some at $99 yesterday. And I plan to buy any dips.

In a market that seems to me completely irrational and detached from real economy, I believe Disney could be a safe heaven. The stock is already 35% down and it owns one new Netflix business inside it. By the way, Netflix is now valued close to $200 billion and Disney at $180 billion. Disney+ is the new Netflix in the making. I think by next year, Disney+ will come up with more than 100 million customers and the service should be much improved. Offcourse, the rest of the business is hit, but the whole concept of Disney is based on the core human instincts. Social distancing is necessary now, but in fact it goes against our own DNA. It won't last more than few months. And then we will gradually, come back to normal. It can take 1-2 years, but having said that, the markets will not wait for 1-2 years. They will discount it early. Maybe this is the reason that the stock is so resilient.

Can Disney become cheaper and dip down to the $80s? Certainly. Who knows? But imo that can happen only with an overall market downturn, not just Disney. So, the real question is where the stock will be in 1-2 years from now? With a Disney+ at 65-70% of the Netflix subscribers and the rest of the business segments in recovery mode. I could bet at least 50% higher. Should Netflix multiples remain that high, it could be even 100% higher. Downside risk is not higher than 20-25% and in any case it will be less than any overall market pullback, given that the stock is already punished. Given the current situation in the markets, this is a nice risk/reward investment.
SunriseZ profile picture
Disney+ will run at loss for a few years
I think Disney is a really gem but not this price
augmented reality profile picture
@avtaprantzis - agree- I don't see any point to owning DIS right now... I've sold off and am awaiting the next quarters result... the full impact of their dire situation( impacted by corona) will be quite apparent.
That's when I would again be a buyer, which I imagine will be far lower. interesting to see if the dividend is again suspended.
Special Companies Watch profile picture
the question is > is Disney undervalued or Netflix overvalued? Would I own netflix to sell it to the next investor at a higher price ? sure. Would I own netflix as a private investor for its cash flow? no.
I just don’t see it as positive as you paint it.
Next quarter is going to be awful and the real question is what kind of profit can they turn with 30% park occupancy (when all the expenses come back from being open) and how soon can they realistically get a cruise running?
And how do you arrive at future monthly revenue for Disney+? You have projected more than double /mo in revenue over what time frame? Certainly not next quarter or even the one after that. They got a huge advance in sign ups due to people staying at home, that rate of increase I have a very hard time seeing as continuous.
Add in further uncertainty of another spike in cases shutting them down again and I have to say no-thanks at this point.
Still a great company but would need a much better price. Would be looking at 70. The one positive is it looks like they have the cash cushion to ride this out for quite awhile.
The parks were never at 100% capacity anyways. They were probably never even at 70% capacity. So operating at 30% capacity would probably be about half of their normal occupancy
You ever been there around a holiday or when school is out? When you can't get a meal or a snack for hours? When they close half the rides because of low turnouts so the lines are still long? You ever been there when they close the park because it is full? They're not going to be profitable at 25 to 50 percent maximum capacity. Anyway, I, like the rest of the world like Disney. I feel you will be able to buy it at less than 100. Hell, if this weren't Disney it would be at 75 right now.
Buyandhold 2012 profile picture
Disney's star is shining bright?

They just eliminated a dividend payment!

That's BAD.


BAD Disney!

I hope they eliminate the salaries of all of the executives at Disney for one year.

If the price of Disney falls by another 20%, I will buy more shares.
That's not bad is it prudent. Revenues from parks and cruises went to zero. Conserving cash is preserving the company in a crisis.
augmented reality profile picture
@Buyandhold 2012 just watch the next quarters ER.... stay well my friend... (and please direct deposit those other dividend checks... !)
Buyandhold 2012 profile picture
augmented reality,

I used to take my dividend checks to the bank and hand them to the bank teller.

Now I have to use the drive-thru.

I stick my dividend checks and deposit slip in a vacuum tube and the tube is sucked up into the bank.

Then the tube comes back to me with a confirmation slip of my deposit and a dog biscuit.

The dog biscuit is not for me. It's for the schnauzer.
Parks and cruises are shut down the rest of the year and probably into early 2020. Streaming is strong. Long term it's still an iconic company and brand. For me I'll average in over the next several months have already bought some shares. It's only for those with a longer term view 2+ years.
Lol..if you have a longer term view then you will be better off buying SPY ETF than this stock..
augmented reality profile picture
interesting as I follow fidelity top buys/sells. etc... DIS has always been in the top 5 ... its now down to around #26...
Shining Bright!?!? Right now Disney stock is less than the average price over the last 5 years. Possibly going to have to wait another 3-4 years for the stock to go back to where it was in 2019. It is conceivable that by 2024 over a 10 year period that Disney stock for 95% of that time to be between $100-$125 a share. The most stagnant major stock there is. Hardly "shining bright".
Short term bumps? Are you kidding? Realistically it may be 2021 before parks open and 2022 before occupancy is back up.
I'm not touching this company until they get rid of Kathleen Kennedy at Lucas Film. She is literally ruining the Star Wars franchise with her personal agenda and is costing billions in lost revenue. It was her dumb idea to base Galaxy's Edge not on the Original Trilogy, but on the sequel trilogy which nobody cares about, has no staying power and won't resonate with fans years from now. The fact she still even has a job there, let alone being the president, says a lot about the judgment of the Bobs.
Stock is still expensive
1 yr maybe 2...I love DIS...but they are 5-7 yrs away from recovering. & that is after the fire sale of some of their business. It sucks seeing such a wonderful company in this situation. I am shorting to $40...then will go all in. CA will not let theme park open until
Phase 3 (months & months away) possibly 2021.
Thanks for a good article. Basically every family with children or marvel fans are very happy to pay for disney+. At some point (say a few years) disney+ will have 200m customers, and the margins of disney+ will be very high. And quietly Disney+ can increase and increase the prices.

The potential is enormous.

It would be very interesting to see the breakdown of:

Media Networks, $7.26B (up 28%); and Direct-to-Consumer & International, $4.12B (up 261%). If some contributor would want to make some research on that, it would be highly appreciated!
Would be interesting to see for example how much revenue Simpsons generate in the international segment. Almost independently on where in Europe you are, some channel show Simpsons.

On Disneys homepage I cannot find a list of all the series and movies Disney own. A little bit strange that the Annual report does not have such a list, neither I could find such a list in any sec-filings.

Several other report such lists, but they are very incomplete. Anyone have a link to a reliable list on all the tv-series and movies Disney own?
I think the author must have very rose tinted glasses. The world I see around me is very different to anything I have seen in my lifetime. People range from cautious to very scared. This is not about Disney it it’s management. It about people and how they will change going forward. If social distancing become the new normal Disney will be hurt as much as airlines, hotels and restaurant and whose buying thise stocks now.
I'm sorry, on what planet are you living?
Sorry Daniel but Disney still has lots to worry about. The NFL may or may not play this season. Same with College Football and Basketball. Same with Pro Basketball. ESPN sports went downhill when left in the hands of Skipper, a Cocaine Addict. Finally they fired him after the segment lost a lot of revenue.

Movies will be delayed who knows how long from their initial showings.

Theme parks forget it. Disney Plus may get old after a year. Looks good now, but wait a bit.

Disney Cruises---Forget about it.

I do agree that it will probably take a year or two or three for Disney to even begin to make some real money.

The shares I bought close to $140 are going to be losers for quite some time. That is Sad!
VatosLocos profile picture
I agree with you. Disney has a very long way to go. Much hope is based on a back to normal situation within the coming months. That is an illusion.

So the theme park and cruise business will be hurting Disney now and for the coming year(s).

Movie theaters will open but at 40% capacity.

ESPN/sports is the big ?

and Disney plus is cheap but not on a Netflix level regarding to content.
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