The Walt Disney Company (NYSE: DIS) has taken a beating as a result of the COVID-19 global pandemic. Disney is one of the most negatively affected Dow stocks, with its assets across the world sitting idle. But there may be hope for the “Happiest Place on Earth” as a U.S. reopening is on the horizon.
Disney has shuttered most of its businesses since mid-March, with the huge exception of its streaming services. Disney’s hotels, theme parks, and cruises are currently closed, but this is about to change–and very soon. Investors have sent Disney stock higher in anticipation.
Just one week ago, Disney ranked in the bottom third of the Dow Jones industrial average, but the stock price has rallied over 15% this week alone. It’s hard not to be optimistic about the Mouse House when the company looks to be resuming operations in the near future.
Disney ranks somewhere in the middle of the Dow in terms of its year-to-date performance. It’s no secret that Disney has not kept pace with the recovery of the Dow or the S&P 500, or most of the stock market for that matter. Disney shares are down about 15% year to date, but after the stock’s performance this week, anything is possible.
As a return to normalcy–or a new normal–draws closer, Disney is only gaining strength. The market acts as a discounting mechanism for future earnings, and while future earnings look depressed now because parks are closed, reopening could solve many of these problems. The stock price has already responded positively to this news, and as this occurs shares should only go up from here in the long term.
Reopening
The Mouse House reopened Shanghai Disneyland last week. While capacity is very much a limiting factor, the reopening was a huge success. Tickets were sold out in a matter of minutes as Chinese Disney fans showed no fear entering the theme park.
This was the first time that Shanghai Disneyland was open since its closure in January. Also, this was the first major theme park to reopen since the COVID-19 shutdowns. However, some big changes are being implemented at the park in the form of PPE and social distancing requirements.
In the past this park saw about 80,000 visitors per day, but with safety regulations and social distancing measures in place, that number has decreased significantly. The Chinese government has mandated a capacity cap of 30%, or about 24,000 visitors. CEO Bob Chapek noted last week that the Shanghai park initially would operate well below the 80,000 capacity and then ramp up to reach the 30% cap over the course of several weeks.
With this reopening underway, Disney is shifting its focus to the domestic front. The company presented reopening proposals to Florida’s Orange County Economic Recovery Task Force on Wednesday morning. The plans were approved.
Walt Disney World will have a phased reopening for its four theme parks. Disney’s Magic Kingdom and Animal Kingdom plan to open again on July 11. Separately, Disney’s Hollywood Studios and Epcot will resume business on July 15.
As these parks reopen, there will be increased safety precautions similar to what was seen when Shanghai Disneyland reopened. New requirements will include temperature checks upon arrival, social distancing, “limited-contact enhancements,” mandatory face masks, hand-washing and sanitizing stations, and enhanced cleaning. In terms of the “limited-contact enhancements,” Disney gave a couple examples of contactless payments and mobile orders at restaurants.
Outside of the parks, other Disney properties are already in the process of reopening. Disney Springs is currently undergoing a phased reopening of some of its stores and eateries. Also Disney Vacation Club properties in Vero Beach, Florida and Hilton Head, South Carolina are set to open on June 15. The Vacation Clubs at Disney World and Disney’s Fort Wilderness Resort and Campground are scheduled to reopen on June 22.
Streaming Kings
As Disney reopens its parks, the company is regaining strength. However, it’s important to note what has kept Disney afloat in the meantime—its streaming service.
Earlier this month, Disney announced that it had 54.5 million Disney+ subscribers as of May 4. While its subscriber growth is slowing down, the other parts of its business will start to pick up the slack from here. Previously, Disney announced that it passed the 50 million mark on April 8, up from 33.5 million on March 28. At the end of the company’s first quarter in December, Disney+ only had 26.5 million subscribers.
Separately, Disney reported that its Hulu service had 32.1 million total subscribers, an increase from 30.4 million from last quarter and 25.2 million a year ago. At the same time, ESPN+ had 7.9 million subscribers, up from 6.6 million at the end of the first quarter and 2.2 million a year ago.
Even though the numbers have slowed recently, Disney is in an incredible position going forward—really a few years ahead of schedule. The company previously forecast between 60 million and 90 million Disney+ subscribers by the end of its 2024 fiscal year.
Streaming platforms have more or less become an essential service as more people are craving entertainment from the safety of their homes, and Disney is not the only beneficiary.
In terms of the competition, Netflix (NASDAQ: NFLX) reported 15.77 million global paid net subscriber additions for its first quarter. However, Netflix warned it expects a decline in viewership and slowdown once shelter-in-place orders begin to lift. AT&T (NYSE: T) just launched its HBO Max service. Other major players in the streaming business are Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOGL), and Apple (NASDAQ: AAPL).
Comparatively, consumers are paying roughly $7 a month for Disney+ (even more if they pursue the Hulu/ESPN+ Bundle) and $9 a month for the cheapest tier of Netflix. Apple TV+ costs about $5 per month, and Amazon Prime Video as a standalone service costs $9 per month. Note that there are hardware costs associated with Apple TV+, and that Amazon Prime members get Prime Video for free.
While Disney has its work cut out in the streaming wars, the Mouse House has premium content and a much higher appeal to a younger audience than any of the other services. Again, as the theme parks begin to reopen, Disney will only get stronger.
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