Walt Disney (NYSE:DIS) has been hammered over the past few months as the novel coronavirus continues to grip the public. DIS stock fell 48.1% from peak to trough and still remains 32% off its highs.
Unfortunately, Disney deserves such a plunge. It’s not due to any specific fault of its own; it’s just the way its business model lines up. It seemed bad enough when Disney had to close its Shanghai park during the Chinese Lunar New Year.
However, it’s had to take similar action with its parks in the U.S. At the same time, the sports world has ground to a halt, which will surely deal a swift blow to its ABC, ESPN and other cable channels. While 2020 wasn’t set to be a monster year at the studio compared to a record-setting 2019, films are still a big revenue generator for Disney. To delay these releases will only hurt the company’s top and bottom line.
Can it be true that the coronavirus is the worst and simultaneously the best thing that could happen to Disney? It’s hard to even ask, since even the mere suggestion that a company can experience a “best case” outcome from such a brutal outbreak feels somewhat immoral.
However, it’s hard to deny that Disney isn’t seeing some benefit. Like Netflix (NASDAQ:NFLX), Roku (NASDAQ:ROKU) and other streaming plays, Disney+ has seen a surge in momentum.
Disney+ Is Booming
The streaming service that launched just six months ago has already topped 50 million new subscribers. I expect the growth to keep on coming. First, the price point is incredibly low, at just $6.99 per month or $69.99 a year if it’s unbundled from Disney’s other streaming options.
With cord-cutting set as a secular trend and with consumers looking for quality options at a low price, Disney+ fits the bill. Further, the service just launched a few weeks ago in major markets, like the U.K., Ireland, France, Germany, Italy, Spain, Austria and Switzerland. That should fuel growth for months and years to come.
Disney+ and the company’s other streaming platforms are certainly a way of the future. So to see such rapid traction on its platform is very promising. When asked about the sustainability of these trends, Professor Patrick Ferrucci of the University of Colorado-Boulder had some interesting commentary:
“I think this is actually sustainable. Usually, what happens, is once you get someone comfortable with the idea of paying for a service, they will continue to do so. So if younger people are now realizing that paying for streaming brings some inherent value into their lives, they’ll continue to do so. I imagine for newer services such as Disney+, they may actually be tested in terms of how much content they can provide, a problem Netflix won’t have. As for reconciling growth, I don’t know if these companies care very much, to be honest. Disney, for example, is probably losing plenty in other areas such as parks, so this probably doesn’t even offset that.”
Daniel McCarthy, assistant professor of Marketing at Emory University’s Goizueta Business School, agreed. “Over the next few months, I would expect this strength to continue, as services such as Netflix and Disney attract more new users and retain current subscribers,” he wrote in an email to InvestorPlace. While he says some of those subscribers will leave once they’re no longer stuck at home, not all will. “As long as these services don’t pay top dollar to attract new users through discounts and expensive paid advertising, I think they will come out resoundingly ahead of their peers.”
The Bottom Line on DIS Stock
Turning more to the immediate situation regarding coronavirus, the company announced it will furlough almost half of its employees. Impacting 100,000 employees, Disney will save roughly $500 million a month with the move. While you never like to hear of people losing their jobs, this will ensure the company’s financials stay in check.
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Disney is going to be negatively impacted from Covid-19 — that’s just the way it is. The company will suffer financially, but it will eventually recover. Its year-over-year growth will likely prove strong in 2021, while its Disney+ growth will hopefully allow investors to see a silver lining.
With or without that silver lining though, the stock deserved to sell off. On the decline, DIS stock dipped to sub-$80 levels before snapping back above $100. I would view sub-$90, and in particular, sub-$80 prices as a buying opportunity for long-term investors.
While the company faces certain issues at the moment, Disney will be around for decades to come. I love this name for the long term and believe that once Covid-19 is out of the way, its regular businesses will go back to normal, with the added bonus that its streaming platforms will have already absorbed a ton of accelerated growth.
DIS stock has a lot of meaningful metrics between $110 and $115, so that area should be considered upside resistance until reclaimed. A break of $100 on the downside could very well send Disney back down into low- to mid-$90s. From there, it will be important to see how the stock responds.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long DIS.
