Walt Disney Company 3rd Quarter Losses
This week has been an interesting one with earnings reports both big and small. Wall Street’s reaction to the earnings has been somewhat mixed, but not nearly as negative as one might expect given some of the staggering losses that are being reported. We’ve covered the mind numbing Vegas gaming losses and now let’s talk Disney.
Walt Disney Company Earnings Released
The Walt Disney Company reported their 3rd Fiscal Quarter earnings and judging from their stock price you might think what they reported was good news, but it was far from that. Yes I know stock prices aren’t always a reflection of the current reality, but Disney’s situation is tough as you will see in their numbers.
To start, they lost $2.61 per share compared to a profit of $.79 per share in the prior-year quarter. They also released some pretty stark numbers for the first 9 months of their fiscal year. “EPS from continuing operations for the nine months ended June 27, 2020 was a loss of $1.17 compared to income of $5.97 in the prior-year period.” Some of those losses do have to do with last year’s Fox acquisition, but a lot of the changes are in their Parks, Experiences and Products division which lost $3.5 billion in operating income.
“The most significant impact in the current quarter from COVID-19 was an approximately $3.5 billion adverse impact on operating income at our Parks, Experiences and Products segment due to revenue lost as a result of the closures. The negative impact at Parks, Experiences and Products was partially offset by a positive impact at Media Networks.”
To find out the details of the media networks numbers and what has improved for them, make sure to check out their press release.
Disney Parks & Resorts Are In HUGE Trouble
Disney puts their hotels, theme parks and cruise line under the “Parks, Experiences & Products” along with merchandise and retail. As mentioned earlier Disney estimates they lost $3.5 billion in revenue due to COVID-19 within this division in their 3rd quarter. During this quarter their domestic theme parks were closed as was the cruise line. International Parks were all partially or completely closed during the quarter as well.
What does this loss mean for the future of the theme parks? Well let’s be clear. Things are dire at Disney. Will they go out of business? I don’t think so, but what does a company do when they are hemorrhaging money like this? They cut back. Expect to find huge cuts in the parks when they are allowed to fully open.
Disney Loses More Money Every Day
Of course this info comes at a time when Disneyland still isn’t open and Hong Kong Disneyland had to close again. Additionally, Walt Disney World simply isn’t drawing in huge crowds and I wonder just how expensive it is to run that resort with far fewer guests than normal. I guess we’ll know next time Disney reports earnings.
Either way this division of the company is losing huge amounts of money and it doesn’t look to be stopping any time soon. This will impact new rides and attractions for many many years to come. Will they build out the already far along projects? Absolutely, but many other announced projects have already been scrapped and worse yet we probably won’t see any expansions or exciting new projects for a long while.
Disney Did Have Good News
While the parks and cruise line are dragging the company down, they did have good news on the streaming front. Mulan will be released as a $30 add-on for Disney+ subscribers and Disney reported that they now have 100 million customers across their Hulu, ESPN+ and Disney+ streaming services. Disney+ alone has 57.5 million subscribers.
They are still very much in the beginning of building out their streaming strategy and thus lost $706 million in the quarter on customer acquisition and other costs. Still, Disney does seem to be emerging as the primary rival to Netflix, perhaps a reason for the increase in Disney’s stock price following this announcement.
Is This News As Bad As It Seems?
Disney is burdened with huge amounts of debt, but they own a ton of content and thus are all-in on streaming. Iger said streaming was the centerpiece of his strategy before he changed roles and the pandemic has allowed them to gain market share to become the solid #2 in streaming with enough customers and name cache to make a push to expand beyond that.
On the network side I think we’ll see ESPN grow strength as sports begin to ramp up again, but I don’t see the theme parks coming back any time soon and that’s terrible news for Disney. The parks/experiences division is their bread and butter. It has always been counted on to deliver the profits even when the media networks and movies are having an off year.
Truthfully Disney has a lot out of their control with their parks. Many are still closed and the ones that are open are operating at reduced capacity. In Florida the parks are very slow as well, perhaps indicating people don’t want to spend tons of money for a lesser than Disney experience. Then there is Disneyland which is closed for who knows how long. The point is it will be a long time before they will be making money like they were before and that means Disney fans should be prepared for cuts. Less entertainment, less staffing and less new shiny stuff.
Walt Disney Company 3rd Quarter Losses – Bottom Line
Disney posted some of the ugliest losses among big corporations, but it doesn’t seem to be reflected in its stock price. Perhaps this bad news was already baked in or investors are just more excited about the growth in streaming compared to the losses in the parks division. Either way, Disney won’t be the same for a long time and COVID is going to have a tremendous long term impact on Disney and its world famous theme parks.
What do you think? Is Disney in a world of trouble or have they navigated this in the right way? How will these growing losses affect the future of the theme parks when it comes to new experiences and attractions? Share your thoughts below.
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I’ve been buying and selling DIS a lot of call options these last few months. I have kept a core call option position in DIS that I dont touch expiring in June 2021. I buy when the price looks too cheap to ignore and bad news is everywhere and sell when it looks like things are turning around. It’s sort of done the opposite of what you’d expect.
The spike in coronavirus cases before the earnings report seemed to cause a lot of anxiety since there was fear of another WDW shutdown. With the cases starting to slow down everywhere it helped a lot. The other big point is that the net total profit was positive by $1 billion adding in the networks like ESPN. So even with all the problems in the parks, DIS still overall made a profit in what is probably their worst quarter ever with most parks closed in April to June and no sports to advertise with.
Another big fear was that DIS might need to raise more money if they continued losing money every quarter. With some parks being open now, it’s unlikely the loss will be as bad as that going forward. They probably won’t need to raise money again.
With a vaccine being announced in the next few months, I fully expect DIS to continue higher.
I’m concerned about when I’m going to use my many discounted gift cards. Was supposed to go next year but not even sure about that…
You can always use them at the Disney store for Christmas gifts and Halloween costumes.
2K Plus…Thats a lot of costumes and just shopping. But I get what you’re saying. Thanks
Shawn,
Please leave the stock analysis to the pros. I’m a long time investor and Disney shareholder. First of all the earnings were better than expected so a positive surprise. Also Disney made a profit (before special charges) which was very encouraging. Lastly their streaming products (Disney+, Hulu and ESPN+) are doing much better than expected.
Disney parks are only the most visible part of this company to many people and not the overall earnings or growth Many people believe they are.
COVID will be gone in a year or two (at the longest) and the parks will come back. However the Disney brand is strong and many of their other businesses continue to do well.
It is amusing you try to analyze Disney as a company mainly focused on their theme parks. Again, leave the stock analysis to the experts or at least those of us that have done it for years and understand all the reasons it behaves as it does.
Mr. Brain. Thanks for being condescending. I appreciate it. As is described in the title I am taking a look at how this impacts the parks. I don’t know if in all of those years of studying Disney you have seen how the real world impacts the parks, but there is a long documented history of it. A history of which I am very familiar. In the article (of which I doubt you read the entire thing) I do address the fact that the stock market doesn’t reflect current realities and is pricing in the hope of growth with streaming. But to discount the parks which make up a significant portion of their revenue and profit is a mistake. And more importantly I was talking about how this will drive big cuts in the parks and future expansions.
No one is coming here for expert stock advice or analysis on earnings. I stand by the article and my analysis on how it affects the parks. I suspect you only read the title, because your comment has little to do with what I actually wrote considering I made many of the same points you did.
@TheBrain Well said.
Thanks for reading the site Keith. Have a wonderful day.