As the coronavirus wreaks havoc on the U.S. and other parts of the world, many analysts find it impossible not to at least change one of their bullish arguments. Fortunately, when it comes to blue-chip entertainment giant Disney (NYSE:DIS), I remain long-term optimistic. However, that doesn’t necessarily mean that I’m gung-ho on the name. Moving forward, DIS stock has many overt and nuanced challenges.
Obviously, Disney faces severe disruption toward its signature theme parks and resorts. At first, the coronavirus largely affected Asian countries, notably China and Japan. A key consequence was that Tokyo Disneyland and Tokyo DisneySea temporarily closed their doors for safety precautions.
For DIS stock, the decision was hardly insignificant. In 2018, these two theme parks ranked in third and fourth place, respectively, as the world’s most popular amusement parks in terms of attendance figures. Tokyo Disneyland brought in 17.91 million patrons, while Tokyo DisneySea attracted 14.65 million.
Not surprisingly, the top-two most popular parks are Walt Disney World in Orlando, Florida and the iconic Disneyland in Anaheim, California. Attracting nearly 40 million guests in 2018, these two assets represent big money makers for Disney.
For a while, it appeared that the coronavirus would largely be a foreign threat. But the outbreak escalated into an unprecedented crisis in the U.S. On March 20, California shocked the world when its governor ordered its nearly 40 million residents to stay at home. Recently, Florida’s governor issued a statewide, 30-day shelter-in-place order.
With non-essential businesses forcibly removed from the economic equation, that leaves DIS stock with little positive sentiment. Plus, as Japan’s case number increases worryingly, this could further hurt Disney’s prized physical assets.
DIS Stock Must Navigate a Complicated Landscape
To be fair, Disney isn’t just a resort and theme park business. In recent years, the company has significantly expanded its entertainment portfolio. Notably, it acquired perhaps the most enviable media franchise, Star Wars.
In a move that may prove both crucial and fortuitous, Disney released the final film of the original Star Wars canon last December. Although reviews were mixed to put it politely, I’m sure many people watched the movie for the historical element. With the first film in the franchise coming out in 1977, there’s truly nothing like it in media.
Luckily, the movie came out in the nick of time. On March 16, the three largest theater chains in the U.S. shut down indefinitely. While I’m not sure how much of a “negative” catalyst this will be for DIS stock, I’m sure it hasn’t escaped the Magic Kingdom’s management team that other big Hollywood studios can’t release their much-anticipated films.
Universal, which is under the Comcast (NASDAQ:CMCSA) umbrella, will delay its latest Fast and Furious flick “F9” until 2021. Also, Universal acquired the distribution rights for the James Bond movie franchise from Sony (NYSE:SNE). Unfortunately for Universal, they must now delay their spy thriller No Time to Die till November of this year.
That said, it’s not like DIS stock will emerge from this coronavirus cancellation unscathed. Like any big studio, Disney had exciting plans for 2020. Perhaps the most anticipated one was Black Widow, which would have leveraged the company’s Marvel Comics brand. Now, plans are to release Black Widow in November, which messes with Disney’s other scheduled debuts.
And in this political and hostile environment, Mulan, a live-action variant of the animated film by the same name, is dead in the water.
Keep It Dry for Lower Prices
Despite the many headwinds impacting DIS stock, I’m reminded of why I liked the investment in the pre-coronavirus days. Back in November of last year, I stated that the company’s “The Mandalorian” series represented a gamechanger.
Personally, I was a little concerned about Disney+ (the company’s streaming service) competing with Netflix (NASDAQ:NFLX). Known for its family-friendly entertainment, Disney may have trouble attracting adult viewers, who preferred some of Netflix’s gritty dramas.
However, “The Mandalorian” proved that Disney could leverage its Star Wars brand and give it some gravitas. In my opinion, it works out beautifully. Therefore, our quarantine period gives people with nothing to do an opportunity to try the streaming service.
Still, I’m under no delusions. As a non-essential service, Disney faces trying times ahead. I’m not against buying some shares right now. However, I’d keep the powder keg dry for the real selloff that’s over the horizon.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he is long SNE stock.