ii view: Disney suspends the dividend

Park closures under Covid-19 sit opposite growing TV subscriber streaming numbers.  

Second-quarter results to 28 March 2020

• Revenue up 21% to $18 billion
• Net income down 91% to $475 million
• Earnings per share down 93% to $0.26
• Suspending the dividend payment

Chief executive Bob Chapek said:

“While the Covid-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position."

ii round-up:

Walt Disney (NYSE:DIS) has taken the decision to suspend its dividend payment as it estimated the overall hit to profits from Covid-19 to be $1.4 billion.  

Theme park closures accounted for $1 billion of the profit hit, with the balance spread across other operations including film production and cruises.

But its China Shanghai Park is due to reopen in days on a reduced attendance basis, while Covid-19 lockdowns helped subscriber numbers for its Disney+ streaming service jump from 26.5 million at year-end to over 54 million in early May.  

Disney shares fell by around 2% in after-hours US trading and are down by 30% year-to-date. Shares of rival streamer Netflix (NASDAQ:NFLX) are up over 30%, with shares of Amazon (NASDAQ:AMZN) and its Prime TV service up by 25% year-to-date.

Not paying the dividend for both the first and current second quarter is expected to conserve around $1.6 billion, assuming the payment had remained at its previous 88 cents per share. 

Other measures to combat Covid-19 under its new chief executive Bob Chapek include cost cutting, reducing executive salaries and furloughing 120,000 employees. 

Further pandemic hits to profit are expected in the current quarter ending in late June with management now offering no guidance or estimates for the rest of the financial year. 

ii view:

The 2019 launch of its streaming service Disney+ has most recently had investors on the edge of their seats, and a strong content bank is expected to appeal to consumers. A monthly subscription fee of $6.99 and below Netflix’s most-popular service looks to underline its intent. 

Early management estimates of between 60 million and 90 million subscribers by the end of its 2024 fiscal year now appear conservative. Promotional offers from telecom providers such as Verizon (NYSE:VZ) in the US and have helped fuel early success. 

But park closures under Covid-19 have seen its shares give back most of last year’s gains. The dividend payment has now been lost, with uncertainty over the timing of a return to anything like normal business leaving management unable to offer any financial guidance. 

That said, Disney is still the world’s largest theme-park operator, attracting an estimated 160 million visitors a year in more normal times. Its media content bank includes the many successes from Pixar Animation, Marvel and the Star Wars franchise. Given its vast experience in the entertainment arena, its hard to see Disney not making some form of eventual long-term recovery. 

Positives: 

• Diversity of businesses, strong brands and media content bank
• Launched a streaming service to rival Netflix

Negatives:

• Covid-19 has closed or disrupted many of its businesses
• Apple (NASDAQ:AAPL) has commenced its own streaming service

The average rating of stock market analysts:

Buy