Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Will Coronavirus Kill Disney?

Cynics are asking will coronavirus kill Disney (NYSE: DIS) because they are reopening Disney World and Disneyland.

Walt Disney World reopened on 11 July 2020, The Orlando Sentinel reports. Disneyland could reopen on 17 July 2020, CNET claims. EPCOT and Hollywood Studios will reopen on 15 July 2020. In addition, they could reopen the Disneyland hotels on 23 July 2020.

reopen on 17 July 2020, CNET claims. EPCOT and Hollywood Studios will reopen on 15 July 2020. In addition, they could reopen the Disneyland hotels on 23 July 2020.

Disney is trying to protect guests with mask requirements, social distancing, electronic tickets, virtual queues, and limits to parades and other events. However, these measures have limits. For instance, The Orlando Sentinel claims an electronic ticket system crashed, forcing Disney to resort to lengthy lines at Disney World.

Disney Gambles with Catastrophe

To explain, the Florida Department of Health reported 15,299 fresh coronavirus cases on 12 July 2020. Consequently, Clickorlando estimates 11.25% of Floridians tested positive for COVID-19 on 12 July 2020.

To explain, the Florida Department of Health reported 15,299 fresh coronavirus cases on 12 July 2020. Consequently, Clickorlando estimates 11.25% of Floridians tested positive for COVID-19 on 12 July 2020.

Under those circumstances, I cannot imagine any responsible government allowing its citizens to the Walt Disney World Complex in Orange County, Florida (Orlando). In fact, IBM’s Watson artificial intelligence (AI) estimates there were 18,004 confirmed coronavirus cases in Orange County, Florida, on 12 July 2020.

Moreover, Watson estimates the number of confirmed coronavirus cases in Orlando grew by 28.2% between the weeks of 5 July and 12 July 2020. Therefore, Disney is reopening a major tourist attraction in a coronavirus hot spot. Hence, reopening Disney World makes no sense.

Predictably, the internet is mocking the opening which features such attractions as Mickey Mouse in a giant plastic bubble. Frighteningly, Disney is trying to lure tourists to Disneyworld with a widely mocked and video of masked employees begging “guests” to return. Marketwatch compares the video, which makes Disneyworld look dystopian to a horror movie.

Tourists will not Be Visiting Disney Resorts soon

I predict Walt Disney World will not attract enough visitors to cover its operating cost under these conditions.

The Disney resorts rely heavily on international tourists. However, coronavirus travel restrictions cover 93% of the world’s population, The New York Times calculates. Japan, for example, bans the entry of travelers from 76 countries, including the United States.

Consequently, Japanese tourists and their credit cards will not be visiting Disney’s U.S. resorts soon. In contrast, they reopened the Tokyo Disneyland and Disney Sea resorts on 1 July 2020.

I think no responsible government will allow its citizens to travel to the USA for the next year. Foreign governments will quarantine America because the United States leads the world in coronavirus.

Worldometers estimates the total number of coronavirus cases in the United States by 15 July 2020 at 3.58 million. In contrast, the next highest number of coronavirus cases was in Brazil, where they detected 1.939 million cases. Thus, America is a coronavirus hotspot tourists will avoid.

What Can Disney Do with the Resorts?

I have to wonder why Disney is reopening the U.S. resorts. I cannot imagine Disney’s US resorts making enough money to cover their expenses anytime soon.

Therefore, Disney will have to divert money from other businesses, borrow money, or get government aid to finance the operation of its resorts. Moreover, dealing with coronavirus at the parks will distract CEO Bob Chapek from Disney’s core business: entertainment.

I think a better solution will be to find other uses for the closed resorts. For instance, they could film the next Avengers or Captain America movie at Disneyland or Disney World. 

Likewise, they could film episodes of Disney TV shows at the resorts. In particular, they could film scenes from The Mandaloran at the Galaxy’s Edge Star Wars attraction. Disney could make money by renting the parks to other movie companies for filming.

Theme Parks could be great locations for filming because they are easy to seal off. Hence, you can keep anybody with coronavirus symptoms away from the cast and crew.

Disney’s Coronavirus Nightmares

I think Disney (NYSE: DIS) faces three coronavirus nightmares because of the parks’ reopening.

First, visitors who get coronavirus could sue Disney. To elaborate, the courts have not ruled on coronavirus liability or government efforts to give businesses immunity from COVID-19 lawsuits. Hence, Disney could face huge lawsuits over coronavirus.

Second, Disney will face a public relations nightmare if a child dies of coronavirus after visiting a Disney Park. Remember, Disney promotes itself as a safe, family-friendly environment. That image will be impossible to maintain if kids and their grandparents die after visiting the Happiest Place on Earth.

Third, coronavirus could trigger a political backlash that could destroy the Disney parks. If Disneyland or Disney World becomes a coronavirus hotspot, there will be pressure on governments to close those parks.

Does Disney want the nightmare of a governor sending the National Guard to shut down its parks? Similarly, President Donald J. Trump (R-Florida) is under political pressure to do something about coronavirus in an election year.

Disney’s Political Nightmares

A splendid way for the Donald to appear tough on coronavirus is to send the Marines to shut Disney down. Trump can score political points by attacking an enormous media company and protecting children from coronavirus by going after Disney.

Moreover, Florida is a battleground state, and it has millions of older residents who fear coronavirus. Trump will need those older voters in November, so he will have an incentive to go after any organization spreading coronavirus.

Something to remember is that Trump will want to make it safe for older voters to go to the polls in November. One way to achieve that goal is to shut down tourism in states such as Florida.

The worst political nightmare for Disney could be popular action or vigilantism against coronavirus spreaders. For instance, a group of gun owners or activist moms who shut Disney World down to protect their families.

Nobody will want to take their family to Disney World if armed vigilantes are fighting police or Disney security at the park gates. Few foreign tourists will take their families to Anaheim or Orlando if they view Disney parks as a war zone.

Is Disney Making Money?

I think Disney (NYSE: DIS) has the resources to survive coronavirus. For instance, Disney made a gross profit of $6.091 billion on revenues of $18.009 billion in the quarter ending on 31 March 2020.

However, those numbers fell from $7.842 billion in quarterly gross profits and $20.858 billion in quarterly revenues on 31 December 2019. In addition, Disney’s quarterly operating income fell from $2.691 billion to $1.225 billion in the first three months of 2020.

Dramatically, Disney’s quarterly common net income fell from $2.107 billion on 31 December 2019 to $460 million in April. I think these figures show Disney lost money from coronavirus in the first three months of 2020.

How Much Cash Does Disney Have?

Conversely,The Walt Disney Company (NYSE: DIS) is generating more cash. For instance, Disney reported a $3.157 billion operating cash flow on 31 March 2020.

That operating cash flow grew from $1.63 billion at the end of 2019. Moreover, Disney’s ending cash flow grew from $6.874 billion at the end of 2019 to $6.874 billion in March 2020.

Unfortunately, I think Disney borrowed much of that cash. To explain Disney reported a $1.17 billion financing cash flow on 31 December 2019. That financing cash flow grew to $5.499 billion on 31 March 2020.

The financing cash flow shows the money a company raises by selling debt. Hence, I think Disney is borrowing to cover some of its expenses.

In contrast, Disney’s cash and short-term investments grew from $6.833 billion on New Year’s Eve 2019 to $14.339 billion on 31 March 2020. Thus, Disney is still a cash rich company.

What Value Does Disney Have?

I think Disney (NYSE: DIS) offers enormous value. For instance, Disney reported $206.294 billion in total assets on 31 March 2020. Moreover, Disney’s assets grew from $200.948 billion on 31 December 2019.

I think one of Disney’s greatest assets is the Disney+ streaming service. Disney claims Disney+ had 54.5 million subscribers on 4 May 2020, CNBC reports. That number grew from over 50 million on 8 April 2020.

Moreover, Disney’s other streaming service, Hulu, had 32.1 million subscribers in 1st Quarter 2020. That number grew from 30.4 million in last quarter 2020, CNBC claims. Additionally, Disney’s sports streaming service ESPN+ had 7.9 million subscribers in May 2020 that number grew from 6.6 million in March.

Thus, Disney’s had 94.5 billion streaming subscribers in May 2020. Therefore, Disney has a fast-growing business to replace theme parks and theater-release movies.

In contrast, Netflix (NASDAQ: NFLX) had 182.9 million subscribers in May 2020. I think these numbers show Disney can compete with Netflix.

Disney’s China Bet Pays Off

Strangely, I think coronavirus is justifying Disney’s massive bet on China. Disneyland Shanghai reopened on 11 May 2020, for example.

Therefore, the $5.5 billion Disney spent on its Shanghai resort appears smart. In contrast, Disneyland and Disney World are reopening in July 2020, while Disneyland Paris could reopen on 15 July.

Therefore, the $5.5 billion Disney spent on its Shanghai resort appears smart. In contrast, Disneyland and Disney World are reopening in July 2020, while Disneyland Paris could reopen on 15 July.

Moreover, Worldometers estimates China reported only 83,611 coronavirus cases by 15 July 2020. In addition, China’s coronavirus cases grew at a rate of six a day while America experienced 35,241 fresh cases on 15 July 2020.

Thus, Disney has an enormous investment in the world’s largest COVID-19 resistant economy. Hence, Disney can make money in China if coronavirus shuts the US economy down (which it has).

For example, the Chinese Box Office was $7.975 billion in 2019, Box Office Mojo estimates. However, that number fell by 10.4% from 2018 when films grossed $8.901 billion at the Chinese Box Office.

Additionally, it has been eight years since a Disney movie (the original The Avengers in 2012) was number one at the Chinese box office. However, I think Disney is smart to bet on China because China seems to resist coronavirus.

Disney’s strong Margin of Safety

Therefore, I consider Disney a safe value investment because they diversify it. To explain, The Walt Disney Company (NYSE: DIS) divides its operations between the world’s largest economies, the United States and the People’s Republic of China.

Therefore, I think Mr. Market priced Disney fairly at $121.28 on 15 July 2020. However, investors need to understand the substantial risks Disney is taking at its parks.

However, I think the China investment gives Disney a strong margin of safety despite the dangers coronavirus poses to its parks. Thus, I predict Disney will survive coronavirus even if Disneyland and Disney World die.