Editor’s note: This article is a part of InvestorPlace.com’s Best Stocks for 2020 contest. John Jagerson and Wade Hansen’s pick for the contest is Disney (NYSE:DIS).
This year’s price action on the Disney (NYSE:DIS) stock chart has been just as volatile as the roller coaster track on Mr. Toad’s Wild Ride at Disneyland.
However, for those who have been able to power through the nausea from all of the back-and-forth action, DIS stock has climbed back from some of the losses it was sitting on in March.
Unfortunately, the stock’s bullish momentum has been temporarily halted thanks to the resurgence of confirmed novel coronavirus cases across the United States. Now DIS sits at the No. 6 spot in the Best Stocks contest.
Empty Theme Parks Hurt DIS Stock
DIS continues to be negatively impacted by social-distancing guidelines.
For a while, it looked like the U.S. economy was opening back up and consumers were starting to embrace a new sense of normalcy. DIS took full advantage of this trend by announcing it would be reopening its theme parks in both California and Florida in July.
Sadly, tightening government restrictions and nervous employees have delayed theme park reopenings indefinitely.
This negative surprise has been a blow to the company. Why? Disney’s U.S. and international theme park and hotel business is currently responsible for more than 34% of the company’s revenue and 37% of the company’s earnings. We had hope these numbers would be able to rebound during the second half of 2020, but we’re not confident of that anymore.
… And So Do Delayed Movies
Social distancing has also continued to impact DIS’s movie franchise revenue.
Disney used to be in the one-and-done movie making business. Snow White had no overlap with Robin Hood, which had no overlap with The Lion King.
Today, DIS is taking its cues from the success of the recurring subscription revenue model and is making movie franchises.
For example, Frozen was a smashing success so why not make Frozen II and blow up the box office?
Unfortunately, DIS can’t make as much money — even with its movie franchises — if people aren’t going to movie theaters.
Movie theaters have tried to adjust to the coronavirus with fewer showings, fewer seats in the theater and more thorough cleanings between showings. But most consumers have grown accustomed to watching at home. They’re just less willing now to venture out to the theater.
The company has tried to combat this by releasing some of its new movies, like Frozen II, to streaming services early. But it has had to delay the release of other movies — like Mulan — multiple times, which will delay the revenue generated by those movies.
Positive Impacts from Social Distancing
The primary reason we were so excited about DIS this year was the company’s adoption of the monthly and annual subscription model to generate revenue.
Disney+ has been a boon for the company during the coronavirus crisis.
After its first day of operation in November 2019, Disney+ had more than 10 million subscribers. And that was just the beginning. Disney+ was adding new subscribers at a rate of 1 million per day in late-2019. That was even before everyone was social distancing.
Now Disney+ is about to get a new raft of subscribers with the release of Hamilton. DIS hadn’t planned to release the blockbuster Broadway production to its streaming service until 2021, but with people starving for fresh new content, the company decided to pull the release forward and give viewers something to do during a socially distanced Independence Day weekend.
The revenue generated by these new subscribers likely won’t be enough to compensate for the continued loss of theme-park revenue, but it should blunt the blow.
Best Stocks: Disney’s Star Will Shine Again Soon
After bouncing back up to resistance at $128 (see Figure 1), DIS stock has pulled back and started to consolidate.
Figure 1 — Longer-term Daily Chart of Disney (DIS)
We’re anticipating continued consolidation in Q3 as Wall Street waits to see how far the U.S. is going to have to clamp down to address the recent surge in confirmed coronavirus cases.
However, as soon as DIS can reopen its theme parks, watch for this stock to start resume its course to infinity … and beyond.
John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it. John & Wade do not own the aforementioned securities.
