Here’s Why Disney Shares Fell in After-Hours

September 30, 2020

Walt Disney Co (NYSE: DIS) fell 1.3% in after-hours trading following an announcement of 28,000 job cuts as Covid-19 continues to severely impact its theme parks.

Tim’s Take:

Disney has got a vast array of intellectual property (IP) that any company would be proud of. That hasn’t insulated it from Covid-19, though.

The company best known for Mickey, but which now owns multiple successful franchises through Marvel, has had to bite the bullet on job cuts.

It will hit its park operations the hardest, most notably Disneyland in California and Disney World in Florida. 

The company’s latest earnings – for its fiscal third quarter 2020 – were ugly. Revenue plunged 42% year-on-year to US$11.8 billion while, unsurprisingly, its parks, experience and products division saw an 85% year-on-year decline in revenue.

That resulted in operating income from its parks division swinging from US$1.72 billion in the same quarter in 2019 to a loss of US$1.96 billion in its latest quarter.

Hits and misses

There have been some bright spots, though. Disney+, its direct-to-consumer streaming service, has been a resounding success ever since being launched earlier this year.

Less than six months in and the Netflix-like competing service had already amassed 57.5 million subscribers. That’s no surprise given the amount of quality content Disney owns.

For long-term investors, though, this is a dual bet on a somewhat swift recovery for its parks division and on a streaming service that will be able to at least take significant market share from Netflix.

One strategic decision that has quickly blown over is the passing of the CEO baton from Bob Iger to current CEO Bob Chapek (who was former head of the parks division). 

It was somewhat of a shock that Kevin Mayer, who oversaw Disney’s Direct-to-consumer & International division, was overlooked.

Given Disney+ falls under that umbrella, I would have thought it makes sense that the entertainment giant’s future lay in the streaming world.

That’s something that investors should monitor. I’m a fan of Disney’s content but on the business side, I’m not yet sold on its recovery or long-term direction.

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.

This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.

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Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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