Is Disney Stock A Sell?

Walt Disney Co (NYSE:DIS) was far from the happiest place on earth when it was forced to shut its doors like most other amusement and entertainment parks.

The company’s branded cruises, theme parks, and even production studios were shuttered. Theaters showing its blockbuster releases were closed too.

Still, the company’s share price rose on the strength of its streaming numbers across Disney Plus and Hulu. It owns a massive library of content and intellectual property, including Frozen, Marvel, and Star Wars. And the House of Mouse is closing the year strong, so is Disney stock a Sell right now?

DIS share price already showed vulnerability when AT&T (T) announced rival Warner Bros would distribute new releases simultaneously on HBO Max and in theaters. This new approach could help the studio squeeze past Disney’s streaming success and highlights a new strategy to monetize Hollywood blockbusters.

Of course, the reopening of Disney resorts and other experiences could provide a major growth boost, even with WB stealing the investor spotlight.

The question now is will Disney’s investors live happily ever after?

Why Did Disney Drop?

The Walt Disney Company’s parks and resorts segment was hit hard by the shutdown of amusement parks across the globe.

The company’s stock struggled to recover as technology stocks roared back to all-time highs.

Another major problem the company faced was the closure of professional sports leagues, which strangled its ESPN brand. With no professional basketball or baseball games, new content was at a premium.

Retail closures bottlenecked the company’s licensed sales too.

And that’s not all – Disney also faced heat over its live-action remake of Mulan, in which both the company and star Liu Yifei were embroiled in geopolitical controversy.

Yifei tweeted support for Hong Kong police during 2019 protests, while the movie was partly filmed in the Xinjiang region of China. This region is reportedly filled with Muslim detention camps that hold a persecuted group of ethnic minorities.

On top of this, theaters and film sets around the world were closed as social distancing guidelines were placed. This forced the company to shut down production on its content pipeline while struggling to monetize scheduled releases.

Movies like Mulan, The New Mutants, and Artemis Fowl were challenged to find audiences to make up for their hefty budgets. None of these films earned enough at the box office to make up for their expensive productions.

The latter was released exclusively on Disney Plus, and that’s where bullish investors see value in Disney’s growth potential.

Financially the hits kept coming: reported revenue for the fiscal year 2020 was $16.5 billion, down $10 billion year-over-year. That led some to question whether the stock, after rebounding is a Sell.

Is Disney Stock A Sell?

Disney shares dropped from the $140-$150 trading range to a 52-week low of $79.07. DIS share price did finally recover its former price levels when the overall market rallied into year-end.

This was on the back of two things – the possibility of a reopened economy bringing tourism back to Disney resorts and the strength of its streaming assets.

The House of Mouse bought Fox Studios in 2018, making it a strong player in the streaming video market. It owns the majority share in Hulu and bundles it with its ESPN and Disney-branded services. Its extensive library is migrating away from services like Netflix (NFLX) to continue bringing in customers.

Its network and cable broadcasts picked up the slack, and the company eventually worked with the NBA to finish its season and post-season at Walt Disney World Resort’s ESPN Wide World of Sports Complex. The NBA bubble season helped the company rebound during a rough year.

Now that it’s at record high valuations, some investors are looking to sell and walk away. That could be a mistake, as its resorts will eventually reopen and generate revenue.

It also has plenty of heat left in its content pipeline, with movies like Free Guy, Pixar’s Soul, Kingsman, Marvel’s Black Widow, and more slated for release over the next year.

Of course, there’s always risk they’ll fail to return enough to make up for their budgets. 

Disney Stock Risks Mount Up

The biggest risk to Disney’s stock is a slow economic recovery and turmoil in theaters that could choke two of its prominent revenue streams. It cost the company approximately $5 billion to close its theme parks, and their continued closure is estimated to cost it between $20 million and $30 million per day.

In addition, releasing movies on its streaming service affects Disney’s overall profitability.

Of course, it needs this new content to compete with rivals like Netflix and Comcast, whose Warner Bros division announced in December it would release blockbusters like Wonder Woman 1984 simultaneously in theaters and its HBO Max streaming service.

This puts Disney in a strange position. One can only wonder how many free multi-million-dollar blockbuster productions it plans to throw away at a streaming service.

This could choke its recovery efforts.

Will Disney Stock Recover?

Disney stock already recovered its value. The real question is whether it can continue to grow its market capitalization during what’s sure to be a turbulent economy in 2021. The company’s streaming service faces stiff competition, and theater owners are upset at the idea of major movie draws skipping theaters.

There are stormy waters ahead, but the general outlook for Disney is good once it gets everything back to normal.

Professional sports leagues, resorts, cruise ships, and retail all add to the company’s bottom line, and profitability will go up as soon as they’re reopened.

Is Disney Stock A Sell? The Bottom Line

The Walt Disney Company took a beating in FY 2020. Worldwide stay-at-home orders and travel restrictions shuttered its theme parks, while social distancing stopped its box office revenue and even halted productions.

It cost the company billions, but Disney managed to stay operational and even grew on the back of its broadcasting and digital streaming services.

As the pandemic waves continue, it’s unclear how long it will be before travel returns to normal. When it does, Disney has a lot of weapons at its disposal to continue growing to new heights in the coming years.

But nobody knows when that will happen.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.