A mix of good and bad news in the entertainment and media world.

By Ben Scheer

It’s an interesting time for companies in the entertainment and media industry. Theme parks, retail stores, cruise ships, theaters, and more are certainly taking a hit as they all rely on people showing up. This is why stocks like Carnival, Royal Caribbean, and Norwegian Cruise Line are having a rough time.

One huge, notable company in this space is Disney. Given the company’s diverse portfolio of assets, it’s important to look at what is currently helping them as well as what is hurting them. This will help determine whether it’s a good or bad idea to invest in Disney right now. Read on to dive in!

What’s Helping Disney

Disney has a strong portfolio with valuable intellectual property holdings that protect the company from competitors. The intellectual property holdings go hand-in-hand with the hype around parks and cruises along with sales from movie franchises like Star Wars.

DIS stock performance as of August 2020 from EEON

Along with its vast number of consumer products, the company has strong consumer services like ESPN+, Hulu, and its newest addition, Disney+. Together, these account for millions and millions of subscriptions, and Disney+ has seen widespread success so far.

The NBA suspended its season in March, and at the time it was uncertain when a restart would occur. Fortunately, the NBA made a deal with Disney to continue the games at the Walt Disney World Resort in Florida with teams staying at 3 different Disney hotels. This involves a strict “bubble” to keep players safe from CV-19 moving forward.

ESPN, under Disney, can generate significant ad revenue given their rights (along with ABC) to broadcast these games. In fact, there was a surge in viewership of about 47 million people. That’s good news for ad revenue.

What’s Hurting Disney

The biggest threat to the company shows in its third-quarter earnings, indicating the impact of park closures, retail closures, and cruise suspensions. Their Parks, Experience, and Products area experiences around an 85% decline in revenues.

The company did test the waters to see if reopening parks would be a good idea. For example, Hong Kong Disneyland reopened in June, but then closed again in July because of the pandemic. It could take much longer than expected for folks to feel comfortable traveling via airplanes to participate in crowded parks or cruises.

There were negative impacts on Disney’s Media Networks ad revenue given the cancellations of sporting events earlier in 2020. The decreased revenue just adds on to the trend that folks are spending more time away from cable and on streaming services instead like Netflix. This wasn’t as bad as it could have been because the costs for production, marketing, and programming also decreased.

It doesn’t help their Studio Entertainment sector that theaters across the U.S. have closed. This was reflected in the decision to premiere Mulan on Disney+.

Takeaways

It essential to think long-term if you are considering an investment in Disney. It’s realistic to imagine that parks, cruises, and stores will open back up and that those revenue streams to return back to “normal” within the next 5 years or so. It may take some time for Disney shares to climb back to a level like $150 or beyond.

Investors may view the current situation as a sort of firesale in this regard, and encourage the idea of buying when the price is low. This could certainly be true, but those returns probably won’t be seen for some time, and the stock may be currently quite overvalued given its share price compared to 12-month earnings.

However, for investors in this for the long haul, Disney will likely do what it takes to recover and even thrive, despite the current challenges at hand.

[Note: This article is not financial advice.]


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