3 Questions Disney Investors Must Ask Themselves

The global entertainment company has suffered immensely from the closures of theme parks and cinemas around the world, but the magic is returning!

Sept. 26, 2020

The highly anticipated release of Disney’s (NYSE: DIS) remake of ‘Mulan’ on Disney+ has put the company to the ultimate test to see if it can sustain the launch of its movies in the digital realm. The bold move comes following the closure of cinema complexes due to COVID-19, which delayed the premier of the blockbuster that was expected to gross more than $1 billion. As the company strides to the future, here are three questions you should ask:

What are Disney’s finances like?

Disney’s pixie dust is running low with its revenue dropping by 85% compared to this time last year. The company’s operating income from theme park closures took a $3.5 billion hit during Q3. 

Not only was the pandemic a huge issue for Disney, it also acquired Twenty-First Century Fox, meaning extra severance, contract termination costs, and integration expenses. This led to the entertainment giant reporting a net loss of $4.72 billion for the quarter. 

Some analysts are predicting it could get a lot worse for Disney before it gets better, with losses predicted to reach almost $10 billion in 2020. On a positive note, the business ended the quarter with $23 billion in cash, which should help sustain it during the ongoing uncertain economic climate. 

Can it compete with the likes of Netflix?

While the Disney name has been around for a century, its streaming platform, Disney+ only launched in November 2019. However, the company now boasts a huge subscription base of around 100 million subscribers across various platforms it owns including Disney+, Hulu, and ESPN+. Disney+ makes up more than half of the overall subscriptions, with around 60 million.

The numbers are impressive but are dwarfed compared to Netflix’s (NASDAQ: NFLX) almost 198 million subscribers. While Netflix has the numbers, the streaming giant’s growth rate is 27.3% year-over-year, it isn’t as high as Disneys.  

The simple answer is eventually, Disney+ can absolutely compete with the streaming giant. Its subscription base is almost a third of Netflix’s already and is under a year old and there’s always room for both!

Is this new movie stream model likely to work?

It’s hard to predict the future, but the way Disney has offered ‘Mulan’ to subscribers for an additional $30 on top of its standard fee provides an alternative for moviegoers to view the Disney hit while cinemas are shuttered. 

In order for Disney to break even and fund the $200 million spent on Mulan it would need around 6.7 million pay-per-view rentals or 11% of the 60.5 million Disney+ subscribers to watch the movie. To reach its ultimate target of $1 billion gross it would need around 34 million of its paid viewers to tune in. 

Considering that people are staying in more than ever, it is likely the steaming platform will at least break even. $30 on top of a subscription might seem steep, but really you could get a group of friends together and it would end up being much cheaper than a cinema ticket.

What else is in store for Disney and should you invest?

Disney is on the right track when it comes to the streaming world and it’s likely the company will continue exclusively offering blockbuster movies to its subscribers if the launch of Mulan goes well. The company has also reopened its theme parks in time for the holiday season, and while this sector will be slow to recover it will give Disney a much-needed boost to its revenue.

As for Disney’s hotels and resorts, the company is anticipating opening a little over 50% of them by the end of September. The entertainment company has seen its stock rebound 59% since its slump in March and will likely continue this way, making for a good investment. 

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.