Disney investors could look goofy soon
Streaming service’s growth could slow as children return to school
Walt Disney investors are enjoying the recent show, but they might not get their happily ever after.
Following better-than-feared fiscal third-quarter earnings last week, shares of the media giant have recovered to early February levels achieved before the coronavirus pandemic hit the U.S. Investors pricing in a relatively quick pandemic recovery should brace for some plot twists.
In last year’s June quarter, the two businesses hardest hit by the virus, including park visits and studio entertainment, made up more than half of Disney’s total revenue. In the comparable period this year, the units housing those businesses were down by a combined 74% year over year and comprised less than a quarter of the company’s total top line.
Streaming has been a standout performer amid the pandemic, but its stellar growth could slow as children head back to school — even if that means remote learning. Disney+ subscribers reached more than 57 million in the quarter ended June 27, meaning that in just months, the new service now has almost a third of Netflix’s total subscribers.
That certainly is an impressive feat and proof that consumers are hungry for Disney’s content. But it is also illustrative of a tired parent’s need to find something for children to do amid shelter-in-place orders and while schools have been out of commission—a scenario that will be ending soon.
Meanwhile, prospects for streaming performance in the current quarter might not be as stellar as hoped. PG-13-rated “Hamilton” is likely to have drawn more adults than children to its July release. While $6.99 (U.S.) certainly has the potential to be overlooked on a credit-card bill, more cost-conscious singles and empty-nesters might not want to stick around for a service they rarely use. They are even less likely to shell out an additional $29.99 for an at-home ticket to Disney’s “Mulan” remake next month.
Streaming strength aside, a bet on Disney right now has to be a bet that the theme-park business will recover in earnest.
Moreover, even if all its reopened parks can stay that way, investing in them carries a lot more risk for the foreseeable future. Parks now have capacity limits. Can excitable children safely keep masks on at all times while racing around to their favorite ride, waiting in line or eating? Can all adults, for that matter?
Expectations for resurgence in theme-park visits have made
Disney a crowded long bet for many investors. That creates an opportunity for those on the other side of the trade. Short interest in Disney is just 1.5% of the stock’s free float, according to FactSet. Further progress toward a vaccine could sting those skeptics, but the odds are decent that the coming months will turn into a scary ride for those who expect everything to work out just fine.