Shares of global media icon Disney (NYSE:DIS) have fallen off a cliff since February, par for the course as the coronavirus pandemic brings the global economy to a screeching halt.
Year-to-date, DIS stock is down 30%, and nearly all of that decline has happened in the past six weeks.
On one hand, the sell-off in Disney stock makes complete sense. The company’s media business will be slammed by lower ad spend and a lack of sports content in the second quarter.
To compound the issues, Disney’s theme parks across the globe are naturally, closed. Movie theaters, too, are shut down, so Disney’s marquee films won’t be generating revenue in the near-term.
On the other hand, though, the plunge in DIS stock sets shares up for a healthy second-half 2020 rebound. Here’s why.
- The coronavirus pandemic will probably pass by summer. Daily new reported cases of coronavirus are plateauing and even falling in many countries, including France, Germany, Italy, Spain, and the U.S. So long as this trend persists, the virus could hit near-zero transmission by May or June.
- Televised live sporting events will return by summer, and linear TV ad spending trends will normalize in the second-half of the year. Many sporting organizations appear on track to return with live play by the summer. Resumption of normal economic activity will simultaneously spark a rebound in ad spend.
- Disney’s theme parks will re-open and pent-up consumer demand could turn into outsize theme park attendance. Disney’s parks should be open for most of the back-half of 2020, and there is a chance that pent-up consumer demand for physical experiences translates into better-than-expected park attendance growth in the third and fourth quarters.
- Movie theaters will re-open and Disney has a robust content slate. Much like theme parks, movie theaters will be open for most of the back-half of 2020. During that time, Disney is slated to release a handful of movies which should perform quite well at the box office.
- Disney+ is well positioned for big growth throughout 2020. Disney’s new streaming service, Disney+, will ultimately win because of the coronavirus pandemic, and accelerate in its already robust long-term growth trajectory.
Coronavirus Headwinds Are Temporary
It appears that the coronavirus pandemic is “peaking”, with the number of new cases reported in various countries beginning to plateau and even decline in some cases.
So long as this trend persists, then statistical modeling predicts that the first wave of this pandemic will end by May or June (with no guarantee of a second wave).
Once the pandemic does end, there is enough fiscal and monetary stimulus in the pipeline — and enough pent-up demand from consumers who have been cooped up inside for weeks — to spark gradual normalization in economic activity.
Media Business Will Rebound
Disney’s media business will be hammered in the second quarter by a sudden and sharp drop in ad spend, as well as the pause in live sporting events.
This pain should reverse course into a rebound by the third quarter.
Most major sports leagues, including the NBA, NHL, and MLB, have expressed willingness to resume live events once the pandemic passes. If the pandemic does indeed pass by May or June, then by July we could see not only typical summer sports games being played, but also post-poned springtime sports.
That will lead to an increase in viewership across Disney’s media properties, particularly ABC and ESPN. Concurrent to that rise in viewership, linear TV ad spending trends should rebound alongside a global economic recovery.
Those two tailwinds should combine to spark a strong recovery in Disney’s media business throughout the second-half of 2020.
Theme Parks Will Re-Open
Disney’s theme parks will re-open once the pandemic passes. If the pandemic does stop spreading by May/June, then Disney’s parks globally should re-open by July/August.
The consensus belief on Wall Street right now is that, even once these theme parks re-open, they will be hit with significantly reduced attendance, thanks to lingering consumer fears regarding the virus.
That may be the case. But there’s also a chance that there is enough pent-up consumer demand out there to offset lingering coronavirus fears, and actually spark a quicker-than-expected recovery in park attendance.
If that does happen, DIS stock should head higher in the back-half of the year.
Second Half Box Office Line-Up is Strong
Much like theme parks, movie theaters will re-open once the pandemic ends. All signs point to that happening in July/August.
In the second half of 2020, Disney has a fairly strong content slate, headlined by a star-studded Jungle Cruise movie, a brand new Marvel franchise movie dubbed The Eternals, and a Steven Spielberg Broadway musical West Side Story.
Broadly, then, Disney’s studio business will get butchered in the second quarter, before recovering in the third and fourth quarters.
Disney+ Continues to Excel
Throughout the coronavirus pandemic, while the rest of Disney’s businesses are spiraling, Disney+ is thriving.
That’s because when consumers are stuck at home and bored, they have a higher tendency to sign up for streaming services. But, everyone in the U.S. already has Netflix (NASDAQ:NFLX). So, when looking for more content, U.S. consumers will increasingly look towards non-Netflix streaming services over the next few weeks.
Disney+ is one of those services.
As such, it is quite likely that Disney+ adds a ton of U.S. subscribers in April and May, and continues on a robust growth trajectory for the next few years.
Bottom Line on DIS Stock
Disney stock has been beaten and bruised by the coronavirus pandemic. But, it is looking increasingly likely that the pandemic will pass by the summer. If so, the economy should normalize and rebound in the second-half of 2020. So should Disney’s media, theme parks, and studio businesses. So should DIS stock.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long NFLX.