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Investors Ponder Disney’s Exposure to Pandemic

Media giant Walt Disney Co. has weathered the COVID-19 pandemic by making deep cuts to its workforce, negotiating a massive amount of credit and bringing back a trusted leader to navigate during uncertain times. The company on April 20 furloughed more than 100,000 employees, nearly half its workforce, to save $500 million a month across its theme parks and hotels. “Disney employees have received full pay and benefits during this time, and we’ve committed to paying them through April 18,” the company said in an April 3 statement, when the employee cut was first announced. “However, with no clear indication of when we can restart our businesses, we’re forced to make the difficult decision to take the next step and furlough employees whose jobs aren’t necessary at this time.” Executive bonuses and a $1.5 billion dividend payment due in July were reportedly kept, even as the media giant entered into a 364-day credit agreement with Citibank for up to $5 billion on April 13. Proceeds may be used for “general corporate purposes” and is structured similarly to $5.25 billion and $3 billion credit agreements entered into on March 6. Investors have taken notice of the company’s changing fortunes. In mid-February, shares traded in the $140 range. Shares closed April 22 at $100.99. Disney, which has been a travel and tourism-dependent company as much as an entertainment company ever since Disneyland opened in 1955, has had to keep its cruise ships, hotels and parks closed for more than six weeks. It will have to maintain closure at least through mid-May with many state stay-at-home orders extended. “The virus-related impairment of most of the company’s operations has again shifted the spotlight back to the leisure travel and tourism components,” said Harold Vogel, chief executive of New York firm Vogel Capital Management wrote on Seeking Alpha. “As the pandemic hopefully soon recedes, it’s likely that many people will, despite their pent-up demand, still for a while opt to avoid crowds such as those in movie theaters, theme parks, retail stores and cruise ships.” Vogel’s sentiments were echoed by Ben Smith of the New York Times in a Sunday column piece: “No big media company is more dependent on its customers’ social and physical proximity than Disney, with its theme parks and cruise lines. Few have been hit harder by the pandemic.” In another analysis on Seeking Alpha, Mott Capital Management in New York noted that Disney reported revenue of $20.8 billion in the first quarter this year. Mott estimated $9.4 billion of that “is in danger” of disappearing in the second quarter report. “How much the total impact will be, we will have to wait and see,” the analysis stated. “The big question isn’t this quarter; it is the quarters going forward and what the potential impacts for the business will be long term.” Mott said option traders are betting the stock will drop below $90 by the middle of May. On April 21, Citi analyst Jason Bazinet adjusted his estimate for Disney’s annual earnings per share downward nearly 48 percent and cut his price target to $135 from $161 previously. “Over time, we expect the business to gradually return to ‘normal’ and investors to continue to embrace the firm’s direct-to-consumer pivot,” he wrote. Smith also wrote that the company’s former chief executive Bob Iger resumed control of Disney to lead the executive team through the pandemic and adjust to a changed market on the other side, with limited park attendance and temperature checks at the gates. Iger, 69, made a somewhat abrupt departure in late February as chief executive of the company in favor of Bob Chapek, who had previously headed Disney’s theme parks division. Iger had been chief executive of Disney since 2005. “A crisis of this magnitude, and its impact on Disney, would necessarily result in my actively helping Bob (Chapek) and the company contend with it, particularly since I ran the company for 15 years!” Iger told Smith in an email. At least one glimmer of light comes from Disney’s streaming service, Disney+, which reached 50 million paid subscribers globally on April 9. The Burbank media giant rolled out the service in the United Kingdom, Ireland, France, Germany, Spain and India toward the end of March. India alone accounted for 8 million paid subscribers. When the service launched in November, Disney projected a global subscriber base of 60 million to 90 million by 2024.

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