Walt Disney’s DIS “Careers” page has openings for fireworks and special effects designers, suggesting the Magic Kingdom is gearing up to return its showpiece pyrotechnics to its parks, resorts, special events and even the Disney cruise lines as they all slowly reopen.
But investors aren’t likely to see firecrackers and sparklers when DIS opens the books on Thursday after the close. The entertainment giant continues to slowly make progress toward recovery after the pandemic shut the lights out on its biggest streams of revenue. When theme parks are closed, DIS also loses out on dining and hotel revenues and all those dollars spent on Mickey Mouse ears and other assorted knickknacks.
The booming launch of Disney+ added some magic, helping to more than double the stock price since bottoming in March of last year. Investors are still hanging in there. Despite the near 8% pullback of the stock in the two months since it peaked at $203.02, it’s still holding an 80% year-over-year price gain.
FIGURE 1: IT’S MORE THAN PARKS. Disney’s streaming service Disney+ may have helped keep Disney’s stock price (DIS—candlestick) up year-over-year. During the last year, the Communication Services Sector ($IXC—purple line) has generally been trending up. Data sources: NYSE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
The Mouse Is Back
Disneyland reopened April 30 in Anaheim to an immense amount of fanfare after an unprecedented 412 days of inaction. And though capacity was limited to 25% and only California residents, clips of the opening showed some visitors in tears as they went through the gates of “The Happiest Place on Earth.” And the place is booked through July.
That might be the biggest and best sign the House of Mouse is getting its mojo back, but analysts say it could take another year or even two before DIS gets its revenue stream pumping at full steam again.
This week’s results and conference call chatter could offer insight into how magical the company expects its comeback to be. It’s worth noting, however, that not every DIS property is back in business worldwide and that another COVID setback, for example, like the one California had last winter, could derail anyone’s wish upon a star, so to speak.
As Chief Executive Bob Chapek said on last quarter’s conference call, the parks’ revenues and reopenings are “really going to be determined by the rate of vaccination of the public.”
DIS was able to eke out a profit in the last quarter, thanks mostly to Disney+ and its other streaming services, Hulu and ESPN+. It’s widely expected to do so again, albeit another skinny one. Analysts are expecting a 12% pullback in year-over-year revenues to $15.87 billion and a deeper 53% plunge in profit to $0.28 cents a share.
DIS has surprised Wall Street to the upside in each of the last three quarters and many wonder if there’s been enough activity at the open parks to help again. Capacity limits at parks were loosening in places such as Florida, but were still tight in others across the globe, so the results could be lumpy.
Restrictions will relax again as the summer begins, but social distancing guidelines might not. That’s because reports of lines snaking around the parks could become a deterrent for some would-be visitors. Lines at DIS parks have always been long, but now they’re even longer.
Even still, as theme parks and resorts continue to open and plans for films to hit theater screens this summer continue, some analysts think this might be the last quarter of muted results. At minimum, we should soon return to a more typical apples-to-apples comparison between year-to-year results.
A Numbers Game
Disney+ subscriber growth has been pretty amazing, with the company reporting in March it had passed 100 million members in just a year. There’s little doubt the pandemic-forced lockdowns had as much to do with that by entertaining the masses stuck at home as did DIS’s stable of movies and shows.
But analysts wonder whether the entire quarter held the momentum. Streaming subscriber numbers are likely to be front and center for many investors, considering how disappointing Netflix NFLX subscriber numbers results were in the quarter.
Last month NFLX reported it missed its own watered-down expectations of subscriber growth by 2 million when it only added 4 million in the quarter rather than 6 million. In its letter to shareholders, NFLX blamed the slowdown on “the big COVID-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to COVID-19 production delays.” That was a mantra they had been chirping all year that finally came true.
“It’s just a little wobbly right now,” NFLX chairman Reed Hastings said on the pre-recorded video call. What’s more, NFLX executives expect the numbers to stay relatively low as more folks are vaccinated and begin venturing out again. An expected shift in consumer spending could hurt subscriber sign-ups even further, though NFLX has high hopes the return of some of its more popular shows with fresh episodes might help.
Is it wobbly at DIS too? Let’s not forget that Disney+ isn’t profitable yet and isn’t expected to be until 2024, according to internal guidance.
As life returns to some variation of normal and consumers leave their living rooms, Disney+ is unrolling a number of new series and new episodes of fan favorites, much of it this month. Analysts said they are looking for the early returns on last week’s kickoff of the “Star Wars” franchise with “Star Wars: Clone Wars” as well as input on “The Falcon and Winter Soldier” in hopes it would offer insight into what might be ahead as the pandemic restrictions are lifted going into summer.
This month also sees the release of “Cruella,” first in theaters before hitting the streaming service. Based on the very popular “101 Dalmatians” story, the live-action movie gives the background story of the puppy villain.
There might also be investor interest in how well “Raya and the Last Dragon” is doing with the $29.99 upcharge when it moved to Disney+ from its original theatrical release. Is that something DIS might do more of?
And, as is usual, analysts are likely to probe for more information on what DIS has on its plate for the rest of the year and beyond, and what it expects of the theme park and movie-going public.
Dividends And Cash
Then there’s dividend talk. DIS, like so many other major corporations, was quick to find ways to stop the cash outflow to keep the company alive last year. Scaling back on dividends was a no-brainer for many companies, and DIS did so quickly. Keep an ear to the ground on how long that practice may stay in place. Or not. Many analysts are thinking it might be a bit too soon to start paying out shareholders again.
DIS is sitting on a treasure trove full of cash—more than $31 billion in cash and accounts receivables, thanks to pulling the plug on dividends and borrowing more than $6 billion last year. In the last quarter its cash from operations took a $1.6 billion dive but stayed in the green at $75 million.
Look for an update on its plans for all that cash—whether it would be best returned to shareholders, used to fund growth and expansion, saved for a rainy day, or some combination thereof.
Disney Earnings And Options Data
When Disney’s quarterly report is released after the close Thursday, the company is expected to post adjusted earnings of $0.28 per share, down from $0.60 in the prior-year quarter, according to third-party consensus analyst estimates. Revenue is projected at $15.87 billion, down 11.9% from a year ago.
The options market has priced in an expected share price move of 3.6% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.
Looking at the May 14 options expiration, put activity has been pretty spread out, but with some concentration at the 175 strike. There’s been a bit more activity to the upside, particularly in the 190- and 200-strike calls.
Implied volatility was at the 24th percentile as of Tuesday morning.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.
TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.
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