The ramifications of Covid-19 have affected
Walt Disney (NYSE:DIS) in ways both good and bad. And the effects of the pandemic were on clear display when Disney reported earnings on November 12, 2020. The words “less bad” have probably never been more understated, or welcome, as investors and analysts breathed a sigh of relief.
As someone who has been, and remains, bullish on Disney this is just further indication of my overall thesis on the company. Like Apple (NASDAQ:AAPL), Disney has a loyal – almost cultish – customer base and an evolved ecosystem that allows the company to stay top of mind.
The Focus on Streaming Continues to Pay Off
On the bright side, having more people staying at home has led to an increase in subscriptions to its Disney+ streaming service. In the quarter just ended, Disney reported 73.7 million paying subscribers to the service.
It’s important to put that into context. When Disney launched its streaming service it was forecasting a base of premium subscribers to be anywhere from 60 million to 90 million premium accounts by 2024. So to have 73.7 million subscribers now shows that the allure of the Disney brand is still alive and well.
And the growth in Disney+ is also rubbing off on Disney’s other mature streaming services. Disney reported that the subscriber base for ESPN+ nearly tripled over the past year. And Hulu posted a nearly 30% year-over-year (YOY) increase in its subscriber base.
It Really Is a Small World
But I could have told you that. Over the past two months, I’ve noticed a handful of friends posting photos of their Disney vacations on social media. This is an observation, nothing more. However, it’s another example of how what people may say about their response to the pandemic is different than actual consumer behavior.
This is not to suggest that Disney World is a “super spreader” quite the opposite. In fact, as recently as October 2020, the New York Times ran an editorial in which it acknowledged that the parks thus far appear to be navigating the re-opening successfully:
“As tumultuous as the three months since the reopening have been, however, public health officials and Disney World’s unions say there have been no coronavirus outbreaks among workers or guests. So far, Disney’s wide-ranging safety measures appear to be working.”
This was echoed in the article by Dr. Raul Pino, director of the Florida Department of Health in Orange County, that includes Disney World who said, “We have no issues or concerns with the major theme parks at this point,”
And that was a reason that theme park revenue was “only” down 61% for the quarter.
Don’t Get Too Hung Up On the Dividend Suspension
After Disney stock climbed about 4% in after-market trading, the stock was dropping the morning after earnings on news that it would be suspending its dividend. But this seems like a non-story for a couple of reasons. First, this couldn’t have been unexpected. And second, Disney chief financial officer (CFO) Christine McCarty said would continue with dividends in the long term.
It’s a Marathon, Not a Sprint
If we’re learning anything about the novel coronavirus it’s that we still have a lot to learn. With talks of more restrictive measures, including perhaps a national lockdown of a month or more, Disney is not a stock without headwinds. The company reported its first annual loss in over 40 years. Recovery is not going to be a sprint.
However as I’ve advised in the past, you’re not buying Disney for the moment, you’re buying it for the long haul. Over the last five years, it hasn’t been completely smooth sailing for the House of Mouse. Nevertheless, if you were to have bought shares five years ago, you’re sitting on a gain of nearly 20% and that doesn’t include dividends.
And over those past five years, I’ve read a number of articles that have pronounced the “death of Disney.” I understand that a broken clock only has to be right once, but now is a time to bet on the clockmaker, not the clock.
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