• Lallic Partners

Is Disney Going to Persist?

Koki Mashita | May 11th 2020 | Editor: Eden Chan

Like so many other companies in the entertainment industry, the Walt Disney Company (DIS) has recently seen increasing pressure as a result of the COVID-19 pandemic. The Disney attraction parks are closed, their movies aren’t shown in cinemas, and production has slowed. Of course, as a result of COVID, Disney’s credit rating has been downgraded to A-minus. But will Disney survive?

Balance Sheet & Earnings

Recently, Disney has been underperforming in regards to their EPS (earnings per share) - a figure which has seen a consistent decrease since the Q1 2019 earnings report. When looking at their balance sheet, we see that total current assets have been declining steadily from 3/31/2019. That being said, however, their total liabilities have also been declining since 3/31/2019. Their balance sheet is also well balanced, showing a healthy 2:1 ratio, in terms of its total current assets to total liabilities, respectively. Also, note that the consensus EPS for Q1 2020 released in Aug 04 is estimated at $0.88 - a figure which indicates potential profitability, unless, of course, Disney misses by a huge margin.

When Will Disney Start To Recover?

Unlike other industries harmed by the coronavirus, Disney is a 100% luxury service. And, backed by Disney-owned streaming services such as Disney+, it’s no surprise that Disney continues to see steady profits. Although President Trump has announced that he wants to reopen the country as soon as possible, it is most likely the case that people won’t be rushing back to Disneyland (according to CNN). One key factor in this prediction is the US’ current unemployment rate of almost 14.7 percent (The Labor Department). Put simply, the last thing people will want to do is spend $100 at a theme park.

Disneyland is also famous for packed out, crowded gatherings. So, even if President Trump does manage to open the economy early, the coronavirus will almost certainly still exist, and - needless to say - people will still be scared. And although Trump is currently prioritizing the opening of essential businesses, Disneyland simply doesn’t fall under this category.

It’s certainly not smart for people to gather at Disneyland with hundreds of people, and - from a business perspective - it would be harmful for Disney to stay open.

One of the more indirect impacts of COVID-19 is the postponement of filming for Disney films. Since US government restrictions limit gatherings to only small groups of people, many films and TV shows created by Disney simply can not be produced during this time. To top it off, cinema’s will almost certainly not be opening any time soon. This will have a devastating effect on the Studio Entertainment department of Disney - a department that makes up almost 16 percent of Disney’s revenue.

No need to worry, though. Disney’s media network (cable networks for TV, streaming services, and other shows) makes up almost 35% of total revenues. When we account for the fact that the whole world is now at home, it’s pretty safe to say that this number is only going to get bigger.

A Positive Outlook

In addition to its already steady inflow of TV viewers, Disney has recently announced the launch of a Netflix-like streaming service named, Disney+. In previous weeks, Disney+ has seen a rapid increase in subscription purchases, pulling in “54.5 million subscribers” on the week of May 8th, “after launching less than six months ago.” (The Motley Fool). Needless to say, Disney+ will continue to expand and grow, largely as a result of the COVID-19 pandemic’s home-based nature. And much in the same way that Disney+ has benefited from the pandemic, Netflix shares have reached all-time highs of $449 per share. That’s not something you see everyday.

Should I buy?

Yes, definitely. Why? Because everyone - investors and non-investors alike - need to learn how to perform value investing to make a consistent and safe profit. Value performing is buying securities that appear underpriced and yes, right now, countless companies are underpriced due to COVID-19. All things considered, it is most likely the case that Disney will return to its 52-week highs. It may take some time, but the returns seem to outweigh the consequences of buying low. Although Disney is now only trading at $109 per share (originally $150), we believe that - given Disney’s growth potential - share prices have the capacity to increase by at least 50%. Yes, there are other stocks that have been hit harder such as Royal Caribbean (RCL) and Boeing (BA), but Disney is arguably one of the most promising companies out there right now. If you would like to learn more about value investing, we suggest that you read Margin Of Safety by Seth Klarman.

Written for Lallic Partners

Edited by Eden Chan

Image Citations



Work Citations

Johnston, Matthew. “How Disney Makes Money: Media Networks Generates the Most Income.” Investopedia, Investopedia, 10 Mar. 2020, www.investopedia.com/how-disney-makes-money-4799164.

Kelleher, Suzanne. “Disneyland Ticket Pricing Guide.” TripSavvy, TripSavvy, 14 Mar. 2020, www.tripsavvy.com/disneyland-ticket-pricing-guide-3266290.

Liptak, Kevin, et al. “Trump's Push to Reopen Comes as Hope for a Quick Recovery Fades.” CNN, Cable News Network, 8 May 2020, www.cnn.com/2020/05/08/politics/trump-reopen-economy-pivot-health-recovery-recession/index.html.

“U.S. Jobs Report Shows Clearest Data Yet on Economic Toll: Live Updates.” The New York Times, The New York Times, 8 May 2020, www.nytimes.com/2020/05/08/business/stock-market-coronavirus-jobs-report.html.

“Walt Disney Company (The) (DIS) Balance Sheet.” Yahoo! Finance, Yahoo!, 11 May 2020, finance.yahoo.com/quote/DIS/balance-sheet?p=DIS.

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