If you expect the narrative to be about anything other than COVID and streaming when Disney reports fiscal fourth-quarter financial results after the market close Thursday, you’re probably going to be disappointed.
It’s been about eight months since the pandemic took the U.S. by storm, and things remain challenging for multinational, consumer-facing companies like Disney. But when we’re thinking about the way COVID impacted the media giant this year, it’s really been the tale of two businesses: theme parks and Disney+.
Theme parks are key to maintaining a healthy balance sheet, and Disney+ is critical to the growth trajectory and future for Disney, and as a result both will be closely monitored.
Some of Disney’s theme parks, which are part of its most profitable and free-cash-flow generating segment, are still operating on limited capacity.
Furthermore, Disney’s California theme parks have yet to reopen since March, and its Paris theme park had to shut down again after France imposed another nationwide lockdown. Even though Disneyland Paris’ shutdown occurred in late October and won’t affect its Q4 results, the impact will likely weigh on any guidance the company provides.
During the company’s fiscal third quarter, revenue in the Parks, Experiences and Products segment tanked 85% from the year-ago period to below $1 billion, and it swung to an operating loss of $1.96 billion compared to $1.7 billion profit in the same quarter last year.
While it’s no secret that COVID had a very unfavorable impact on Disney’s legacy businesses, it also positively impacted the company when it comes to streaming. COVID and stay-at-home orders sped up Disney+’s growth, and the company announced that it had a whopping 60.5 million subscribers as of Aug. 3.
That meant Disney was four years ahead of plan by hitting the lower end of its subscriber target less than one year after launch. But there are two ways in which this can play out in 2021. One thing to keep in mind is that some of the Disney+ promotions are ending very soon. Will those promotional users start paying for the service? That remains to be seen.
On the flipside, with a potential for a COVID vaccine on the horizon (in the bull-case scenario), production could pick up next year and that could help Disney beef up its already robust library. If that’s the case, and if Disney decides to release other major films directly on Disney+, it could possibly see a massive spike in subscriptions.
One thing we know for sure is Disney is going all in when it comes to Disney+ and its direct-to-consumer business. The media giant announced a massive restructuring about a month ago that it will be shifting focus toward Disney+, its biggest bet in recent memory.
The new organizational structure means that when it comes to revenue drivers for Disney, it boils down to the Parks, Experiences and Products segment and the newly formed Media and Entertainment Distribution organization.
Though there are still many lingering questions regarding the new structure of Disney’s strategy, what is abundantly clear is positive Disney+ and theme parks announcements sit well with investors of the stock. Despite the overall rough Q3, the stock spiked following Disney’s quarterly results in which it revealed massive Disney+ subscriber growth.
And after positive vaccine news Monday, Disney shares skyrocketed nearly 12% on hopes that Disney’s California parks could open soon. Taking a look at the price action year-to-date, Disney stock is basically back where it started this year.
As of the market close Monday, shares were down only about 1.4% since the start of 2020, and depending on what the company says Thursday, Disney investors might have a solid chance at seeing gains for the year.