A Whole New Norm Could Spell Trouble for Disney
Disney’s dependence on experiences, particularly Parks and Films, puts its business at the mercy of an untamed coronavirus outbreak. Wells Fargo Securities reiterated its Equal Weight rating and bumped up its price target to $118 from $107, while saying it is not convinced the country or world will soon have a handle on the pandemic.
Pressure at the Parks: The company is preparing to reopen Walt Disney World on July 11 after the theme park was closed for nearly 4 months. While the reopening will provide Disney’s business with some relief, a phased opening during a turbulent time for the economy could fall short of investor expectations. Wells Fargo Securities analyst Steven Cahall says in a recent note that “financial progress could be choppy” and nationwide coronavirus hotspots could cause Walt Disney World to be “severely capacity constrained for some time.”
New normal: Modifications at Walt Disney World meant to ensure social distancing include the elimination of behind-the-scenes tours, character meet and greets, parades, and fireworks.
Risk of delayed openings: Unions representing about 17,000 Disneyland employees wrote to Governor Gavin Newsom on Thursday, expressing concern that it was a health hazard to reopen the park. Disneyland is set to reopen on July 17.
Studio Entertainment on the sidelines: Adding to the uncertainty of the Parks rebound is Disney’s film production slate, which came to a grinding halt. Wells Fargo estimates the shutdown implies about $4 billion to $5 billion of content has been stopped or slowed.
Cahall says “DIS without content is like a Ferrari without gas.” But releasing movies before consumers are ready to head to theaters is a major risk of its own and could lead to financial losses. LightShed Partners analyst Rich Greenfield, who has a $85 price target and SELL rating on Disney shares, believes Disney will wait longer than investors are expecting to roll out movies into theaters.
Disney is currently scheduled to release Mulan into theaters on July 24, while Marvel’s Black Widow and Pixar’s Soul are among two of the films with blockbuster potential that have been pushed back this year.
Disney+: Disney’s DTCI (Direct-to-Consumer and International) business segment, which includes Disney+, has outperformed early expectations, rapidly topping 50 million subscribers in April. Rollouts in new international markets will provide the streaming service with subscriber growth, but Wells Fargo cautions that there is less incremental upside for Disney+ in the near-term. Cahall believes investors betting on the company to raise guidance for Disney+ subscriber growth will be disappointed, emphasizing the need for new content development to attract users.
