Walt Disney Could Trap Complacent ShareholdersThe entertainment giant’s revenue may not return to pre-pandemic levels for at least two years.
Dow component Walt Disney Co. (DIS) announced the layoff of 28,000 employees on Tuesday, with terminations spread across the parks, experiences, and consumer products segments, which accounted for 37% of 2019 company revenues. The job action adds to thousands of previous furloughs in movie and television production, which came to a grinding halt in the first stages of the pandemic and is now challenged by the reluctance of consumers to sit in movie theaters.
Disney Failed Pandemic Initiatives
The entertainment giant has reopened Florida, Paris, Shanghai, and Hong Kong theme parks but California’s flagship operations remain closed due to continued high infection rates in Los Angeles and Orange Counties. Youtube.com is now overloaded with tourist videos showing empty but open parks around the world, questioning the wisdom of Disney reopening those facilities before the pandemic runs its course or an effective vaccine is manufactured.
The company has been burning capital all year, with a $1 billion second quarter loss, followed by a $3.5 billion loss in the third quarter. Even so, the stock traded up to lofty 2019 levels during the summer, with bottom fishers scooping up shares in hopes that various segments would reopen successfully. This month’s failure of the live-action “Mulan” film to perform well as a Disney+ $30 pay-per-view undermined already fragile sentiment that’s now taking another hit in reaction to the layoffs.
Wall Street And Technical Outlook
Wall Street consensus looks way too high given multiple headwinds, with a ‘Moderate Buy’ rating based upon 11 ‘Buy’ and 6 ‘Hold’ recommendations. Just one analyst recommends selling Disney even though revenues may not return to pre-pandemic levels for at least two years. Price targets currently range from a low of $97 to a street-high $164 while the stock is now trading about $8 below the median $133 target.
Disney eased into a massive symmetrical triangle pattern in 2015 and finally broke out in 2019 after announcing the release date for the highly-anticipated Disney+ streaming service. It posted an all-time high at 153.41 in December and dropped into a correction that failed the breakout and triangle support during the first quarter’s pandemic swoon. The stock bounced back above both barriers in the second quarter but recent weakness is taking its toll, raising odds for a renewed decline.
For a look at all of today’s economic events, check out our economic calendar.