As of today, Disney (NYSE:DIS) stock is down by 30% from its January high.
A look at its most recent earnings release shows why. It’s filled with what now look like unknowns.
In the December quarter Disney got over half its $20.9 billion in revenue, and three quarters of its profit, from its theme parks and studio. These have been slammed shut by the coronavirus from China.
Then there are media networks, like ESPN, which depend on people staying with their cable packages, or on advertising. How many people will have to cut the cord to save money over the next months, and what will happen to advertising?
Hope From Streaming and Cash
Then there are revenues Disney calls “direct to consumer,” mainly streaming products like Hulu and Disney Plus. This represented almost $4 billion during the December quarter, almost 20% of the total. The unit was losing money, almost $700 million, but these are startup costs. It should become profitable soon.
The bottom line here is that Disney’s December quarter cash flow was just $292 million, against $904 million in the same quarter a year earlier. This was thanks to the initial costs of streaming and the acquisition of Fox’s (NASDAQ:FOX) entertainment assets. Disney will hemorrhage cash in 2020.
The March quarter is going to be a disaster. The same is true for the June quarter. But the big problem is long-term debt, $38 billion at the end of December. Early on March 16 Disney bonds were still trading near par, partly because the company still had $6.8 billion in cash at the end of the period.
What this tells me is that Disney will survive, but it’s going to be severely damaged. Analysts who saw early March prices of $118 as great bargains look foolish with shares trading at $90. But it can go lower.
It can go a lot lower.
If Disney goes to the wall, who might buy it? It would be the cloud leaders and companies with cash.
The obvious answer is Apple (NASDAQ:AAPL). Even with its recent pounding Apple is still worth $1 trillion. The shares are down almost 20% for the year, but that’s half of Disney’s fall.
The currency of Apple shares could easily buy Disney, even at its $170 billion market capitalization. Its $100 billion cash balance would easily get Disney through any crisis.
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is still worth $740 billion and has $119 billion in cash. Microsoft (NASDAQ:MSFT) sounds like a bad strategic fit, but it has $133 billion in cash on the books and a market cap that’s still over $1 trillion. Amazon (NASDAQ:AMZN) has a market cap of $836 billion but very little cash.
Facebook (NASDAQ:FB) is still worth $415 billion but only had $55 billion in cash at the end of the year. What it may have that the others lack is a willingness to take risks. Facebook began putting $1 billion per quarter into its cloud data centers before it had that much in revenue.
The Bottom Line on DIS Stock
Disney is a pearl of great price, but it chose the wrong time to buy Fox. With the virus cutting revenues in half, for at least two quarters, former CEO Bob Iger may have put his company in play.
For the next several months, new CEO Bob Chapek will try to save the company’s independence, and save those asset values. If he seeks new loans, he will get them. If he must sell, there are buyers.
Wait for the panic to subside, then buy it.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT, AMZN and AAPL.