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Will Disney Investors Catch a Break Soon?

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Walt Disney (NYSE:DIS) has been one of the worst-hit stocks amid the coronavirus pandemic. The entertainment company had to close most of its operations to curb the spread of COVID-19. Disney had to shut its film production houses, delay its theatrical releases, and close its theme parks, resorts, and cruise ships. The sudden halt in Disney’s operations led to a huge revenue loss. Like many companies, Disney had to temporarily close its retail stores in response to the coronavirus outbreak, which disrupted its supply chain.

Disney stock declined over 45% since the beginning of the year and reached its lowest levels of $79.07 on March 18. The company recovered slightly after the economy started to reopen. However, the stock is still around 23% this year. Disney stock is down about 27% from the 52-week high of $153.41.

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Disney postpones reopening theme parks

On June 24, Disney announced that it will postpone the phased reopening of its flagship theme parks in California. The company didn’t get the guidelines from California officials. The news disappointed investors. Disney stock fell about 3.9% and closed at $112.07. At Wednesday’s closing price, Disney’s market value is $202.4 billion.

The company planned to reopen Disneyland and Disney California Adventure theme parks in July. The parks have been closed for months due to COVID-19. Disney also planned to open resorts in Anaheim, California, on July 17. The company was going to reopen Disney’s Grand Californian Hotel & Spa and Disney’s Paradise Pier Hotel on July 23. The hotels are a part of the Disneyland Resort.

However, the recent spike in the coronavirus cases in southern California and fears about the second wave of coronavirus changed the company’s plans. Disney will likely wait for new guidelines from California officials before announcing new reopening dates for the theme parks. The company already reopened its Shanghai Disneyland theme park in China on May 11.

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Theme parks are a revenue source

Disney has been foregoing huge revenues and bearing losses this year amid the COVID-19 outbreak. Notably, the company generates most of its revenues from its theme parks and film production business. The company’s film and studio business brought about $11.2 billion in revenue in fiscal 2019. The theme parks added another $26.2 billion in fiscal 2019 revenues. Overall, the film and theme park businesses contributed more than 50% of Disney’s revenues in fiscal 2019 and over 60% of Disney’s operating profit. In the March-ending quarter, the company witnessed a 10% year-over-year decline in theme park revenue.

Can Disney stock rebound in the near term?

With a pause in the movie and theatrical releases and a delay in reopening the theme parks, Disney’s future looks grim in the near term. The company has suspended its dividends and furloughed many of its employees to preserve cash. Disney has also raised billions of dollars to withstand the crisis and boost its liquidity. Reopening the theme parks was a piece of positive news. Opening the parks would have helped the company reduce its debt levels. Looking at the weak economic indicators, the economy might need more time to normalize.

Amid the crisis, Disney+ gained steam since people streamed movies at home. However, the rate of growth in Disney+ users should diminish after the economy reopens.

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