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Fantastic Disney+ Growth Won’t Save Walt Disney Stock. Here’s Why

Last Updated September 23, 2020 2:10 PM
Mark Emem
Last Updated September 23, 2020 2:10 PM
  • Walt Disney will post a loss when it reports earnings on Tuesday.
  • The entertainment giant’s cruises and amusement parks business is among the hardest hit by the pandemic.
  • Its flagship video streaming service will not help matters despite its massive growth.

Walt Disney (NYSE:DIS) will release its third-quarter financial results on August 4.

Based on a FactSet survey of 24 analysts , the House of Mouse will report $1.25 billion in losses. That’s equivalent to a loss of $0.61 per share, a 55% decline from a year ago.

Walt Disney’s biggest revenue driver–Parks, Experiences, and Products–is expected to suffer the most significant decline in sales as a result of the pandemic. Last year, the segment’s share of revenues was 37%.

Walt Disney
Covid-19 is undermining walt Disney’s biggest revenue driver. | Source: Thewaltdisneycompany 

With cruises suspended and amusement parks either closed or operating below optimal capacity, this segment will significantly undercut Disney’s revenues.

Most Profitable Walt Disney Division Not Spared

Walt Disney’s second-biggest business division, Media Networks, has seen mixed results. The lack of regular sports programming for most of the third quarter will hit revenues in this division even though non-sports programming flourished.

In 2019, this division contributed 34% of the revenues. It was the entertainment giant’s biggest contributor to profits. It generated around $7.5 billion in profits compared with $6.8 billion for Parks, Experiences, and Products.

Disney’s third-biggest unit–Studio Entertainment–will remain under pressure in the third quarter as movie theaters remain shuttered.

Watch: The pandemic has wrecked the movie theater business.

Disney+ Turns Into a Fairytale

The silver lining in the company’s results will be its newest video streaming service, Disney+. As of May 4, the streaming service had recorded 54.5+ million paid subscribers , an increase of over 20 million from March 28.

The boost coincided with government shelter-in-place orders, as well as international expansion in parts of Europe and Asia.

Additionally, Netflix’s (NASDAQ: NFLX) second-quarter financial results showed that online streaming continued to grow impressively in the quarter that ended in June. Disney’s streaming service should perform equally well or even better.

Will Video Streaming Give Walt Disney Stock a Happy Ending?

The phenomenal growth in video streaming will not be enough to stem Disney’s declining stock price.

Year-to-date, Walt Disney has trailed the broader market. The stock has fallen by roughly 21% against the S&P 500’s 1% drop.

DIS is trailing the broader market significantly. | Source: TradingView 

Millennials Fall Out of Love With Disney

Robinhood traders are not as keen on DIS stock as they once were, a sign that the pandemic was impacting investor sentiment.

Over the past 30 days, DIS has been the 12th most sold stock  on the platform.

robinhood trading platform
The reviews have come in, and millennials are exiting Disney stock. | Source: Robintrack 

Some analysts are bearish on the stock, with the lowest price target being $97 . The stock is currently trading at a premium of about 20% from this target.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author holds no investment position in the above-mentioned securities.