Is Disney Stock On Your Watchlist This Month?
Walt Disney (DIS Stock Report) was hit hard by the Covid-19 pandemic. The company was forced to close all its theme parks and resorts. Also with cinemas being shut down, it has literally no place to showcase its films during the important summer blockbuster season. The coronavirus pandemic hobbled Disney’s empire- except for one, major success story: Disney+. The movie streaming division couldn’t have come at a better time for Disney. Despite only 7 months old into the movie streaming market, Disney+ is emerging as a top competitor to Netflix (NFLX Stock Report).
As we head into the start of summer, it will be another month before the theme park operator opens its gates. Half of Disney World’s theme parks will begin entertaining guests again on July 11 with another half four days later. On the other side of the world, Shanghai has opened the theme park gradually and Hong Kong Disneyland will reopen on June 18 with limited visitor capacity.
There was a time when investors were hoping for theme parks to fully open in time for the peak summer travel season. Reality kicks in, and we’re down to just having the attractions opening in phases. Now, we don’t know how long these theme parks can stay open with the resurgence of coronavirus cases. In any case, we should acknowledge that the theme parks will not be operating at their full capacity any time soon.
Theme Parks Reopening Drove Disney Stock
Disney will obviously be in better shape once Disney World and Disneyland get going again. But its chances for profitable success are stronger the longer it waits. Why do I say that? In Central Florida, the first couple of days of park operations for Disney’s smaller competitors have been seeing low attendance. But those numbers are expected to grow with every passing week. Snapshots of long lines at various theme parks are a sharp contrast from the small crowds over the debut weekend earlier this month. Can we expect the House of Mouse to gather a large crowd once they open? Possibly.
On the other hand, there are also certain investors who are bearish in DIS stock. This came with the resurgence of coronavirus cases in Florida. The Sunshine State is unlikely to usher people back into lockdown. But if it does happen, you can be sure that there’s a high possibility of delay in the reopening of theme parks.
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Is Profitability Easy As ABC For Disney?
Bernstein’s analyst, Todd Jeunger published a report on Thursday on what attendance levels Disneyland theme parks need to make their reopening worth it for the company. His conclusion? 25% of pre-pandemic attendance would be sufficient to cover the incremental fixed and variable costs of running its parks. As for actual profitability, according to Jeunger, it would be when it’s operating at better than 60% of its pre-pandemic levels.
Despite the gloomy picture for Walt Disney’s theme parks, it is in a unique position with many other profitable businesses to keep money flowing in when its parks shuttered. Disney knows what it’s doing. Some may feel disappointed that Disney has been behind its competitors in reopening its theme parks. Maybe Disney wants to use the rivals’ experience to smoothly transition into new normal operations?
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Is The Worst Over For Disney Stock?
Disney’s parks, resorts and cruise lines will find it hard to be as profitable as they were before the pandemic. And that is until humanity manages to eliminate the novel coronavirus. Major parts of Disney’s empire will likely continue to suffer during the health crisis. Yet, many believe the entertainment colossus should be able to weather the storm.
No doubt, Walt Disney still faces a lot of challenges. But it’s safe to assume that the worst has already happened. Shutting down theme parks would be unlikely. How will this play out? My guess is, the theme parks will probably need strict social distancing measures. This also means operating at a limited capacity in the near-term. In my personal opinion, being profitable is not the main priority for Walt Disney for now. Reducing the rate of cash burn at this point is more crucial for the company to survive this crisis.