Disney: Parks "Plus" Streaming

11/19/2020 5:00 am EST

Focus: CONSUMER

Jason Clark

Contributing Editor, The Prudent Speculator

Movies, entertainment and theme park powerhouse Walt Disney (DIS) reported an adjusted loss per share of $0.20 (versus the -$0.73 estimate) on $14.7 billion of sales, reports Jason Clark, value investing expert and contributing editor to The Prudent Speculator.

Costs and the impact due to COVID-19 amounted to $3.1 billion, with over 75% of these incurred by the Parks, Experiences and Products segment.

While Disneyland in California remains closed due to orders from the state government, Walt Disney World in Orlando, and parks in Shanghai and Hong Kong contributed positively to results.

The elevated focus on Direct-to-Consumer (DTC) has resulted in over 120 million paid subscribers, the lion’s share of which are from Disney+, contributing $4.52 of revenue per user.

Strong broadcasting revenue from affiliates drove higher operating income from Media Networks, partially offset by weaker results at ESPN due to higher production costs from a shift in timing that is expected to offset next quarter.

Shares rallied to nearly break-even on the year this week after news of a possible vaccine from Pfizer excited a variety of equities that have experienced pressure from the virus throughout the year.

“Even with the disruption caused by COVID-19, we’ve been able to effectively manage our businesses while also taking bold, deliberate steps to position our company for greater long-term growth,” said CEO Bob Chapek.

“The real bright spot has been our direct-to-consumer business, which is key to the future of our company, and on this anniversary of the launch of Disney+ we’re pleased to report that, as of the end of the fourth quarter, the service had more than 73 million paid subscribers – far surpassing our expectations in just its first year.”

We think Disney’s performance in the current environment has been remarkable and are very constructive on the company’s doubling down on its streaming services.

Hulu and Disney+ in particular, have been crucial during the pandemic and we appreciate how much control this gives Disney over distribution of its intellectual property going forward.

The board has elected to forgo its January dividend payment in order to preserve cash but remains committed to a payout when the economic environment eventually normalizes.

Our enthusiasm for the company and its stock has not waned, and we applaud management for its ability to focus on growth initiatives while piloting the business through the current storm. Our Target Price for DIS has been hiked to $158.

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