Disney is damaged, and no one knows exactly when it will recover

Forecast is cloudy.
Forecast is cloudy.
Image: Reuters/Benoit Tessier
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Disney theme parks lost $1 billion in profits in the last financial quarter due to Covid-19—and that’s just the start of its expected losses, the company told investors today.

Over the last month and half, Disney has relied almost entirely on its cable, broadcast, and streaming TV businesses to stay afloat as the coronavirus pandemic forces the closures of most in-person experiences like parks and movie theaters around the world.

Its two parks in the US (Disneyland in California and Disney World in Florida) as well as Disneyland Paris were shuttered in mid-March, a few weeks before the quarter ended. The Shanghai Disney Resort closed in January.

Total revenues for Disney’s parks business were $5.5 billion in the quarter, down 10% from the same period last year and ending three straight quarters of growth. But the real damage won’t be known until Disney’s next quarterly earnings report in August, which covers the period from April through June.

Disney says its resiliency and brand affinity will carry it through the crisis, but no one knows how, or when, that will happen.

A few months ago, Disney was on top of the world, coming off its record-breaking 2019. Its films accounted for nearly 40% of the US box office, and its global theme parks were flourishing. Its biggest concern at the time was arguably the decrease in cable TV subscribers as Americans cut the cord—a problem that seems quaint today.

But now Disney is reeling, its businesses uniquely threatened by the pandemic. Netflix, which doesn’t have theme parks or movie theaters to worry about, surpassed Disney in market capitalization last month for only the second time ever, and hasn’t looked back. While Netflix’s stock is up 28% this year, Disney’s is down 28%.

Disney also told investors that the cancellation of all US sports has unsurprisingly wounded its flagship sports network, ESPN, leading to lower viewership, and, in turn, lower advertising revenues.

Prior to today’s earnings, media analysts Michael Nathanson of MoffettNathanson downgraded Disney’s stock, arguing the effects of the pandemic on Disney’s core businesses will last longer than many believe. He forecasted the company’s parks and movies segments will drop 33% and 20% in revenue this year, respectively.

It’s unclear when Disney will be able to reopen its US parks and cruises again—and when they do, how to do so safely. If it jumps the gun, it could lead to not only public relations and financial disasters, but, more importantly, human disasters, too. Its cruise ships, which epidemiologists have said are akin to floating virus incubators, could be set back years.

Disney did announce, however, it will reopen its Shanghai park on May 11 with a number of precautions in place, including mandatory mask use and temperature checks. Fewer guests will be allowed into the park at any given time. Disney executives  told investors they didn’t know when its other parks would be able to open.

The company furloughed 100,000 workers without pay last month (representing roughly half of its employees) in response to the virus. Today, the company announced it would forgo its semi-annual dividend it pays investors. Disney has also entered into agreements with banks that give it access to $13 billion in loans to increase its cash on hand.

Disney’s only silver lining right now is the success of its nascent streaming service, Disney+, which now has 54.5 million subscribers around the world, the company said. Most analysts expect the service to have between 60 and 80 million global subscribers by the end of 2021, putting it three years ahead of Disney’s own goal. As audiences quarantine at home, revenues for Disney’s streaming operation passed $4 billion for the first time last quarter. It’s set to launch in dozens more countries in Europe and South America by the end of the year.