Investors using the stock trading app for financial services company Robinhood seem to be feeling the magic. More than 622,000 of them own shares of Disney (NYSE: DIS), according to Robinhood data, making it the fourth most popular share in its users’ portfolios.
After the coronavirus pandemic forced Disney to temporarily shut down its theme parks, which make up a large part of the company’s main revenue-generating segment, its share price fell in late March by as much as 41%. In the months since then, the stock rebounded somewhat, but is still struggling to regain everything it lost before the mid-February crash. Now, however, it appears that Robinhood investors, often younger people looking for stocks with the potential for short-term profit, are piling up on stocks from the entertainment giant.
Let’s take a closer look at why so many of these Robinhood merchants may think that now is the time to get on the Disney train.
Image Source: Disney.
A partial recovery of the share price.
Robinhood investors can see the recent reopens of the parks and gains in stock prices as signs that Disney stocks are returning to their all-time high reached in October 2019. After a four-month shutdown, the company has reopened its Florida parks. Walt Disney World Magic Kingdom, the most visited theme park in the world, and its Animal Kingdom park opened on July 11. EPCOT and Disney’s Hollywood Studios welcomed the guests a few days later. This is significant because Disney’s parks, experiences and products segment produced 38% of the company’s annual revenue last year.
At the same time, Disney’s stock has recovered. They have risen 39% from the lowest point they sank in late March, a rise that has reduced their losses for the year to 17%.
But are those reopening of parks really an optimistic indicator of earnings? Not immediately.
Disney said it will admit fewer visitors to its theme parks to meet social distancing requirements. The company did not offer details of the opening day, but Len Testa, co-author of an unofficial Disney guide, said USA Today that as of 1 pm on opening day, there were around 10,000 guests at the Magic Kingdom. He said the park generally has an average of 60,000 visitors per day.
The possibility of lower demand may also limit the number of assistance. Some fans may postpone their trips until the parks return to normal operations. Others may stay away due to the rapidly deteriorating Florida coronavirus situation. The state has reported more than 77,000 new COVID-19 diagnoses in the past seven days, according to data from the Centers for Disease Control and Prevention. That is most of any state in the country.
And as the national health crisis continues to worsen, there is always a chance that theme parks will be forced to close again. That is what happened to Hong Kong Disneyland this week. After 100 new cases of COVID-19 were reported Monday and Tuesday in the city of 7.5 million, the Hong Kong government re-imposed restrictions that closed the park “until further notice,” just a month after its reopening. Disneyland parks in California remain closed as that state grapples with its own outbreaks.
Parades, fireworks and Mickey party
Back in Florida, Disney detailed other steps to take at parks, such as temperature controls and the requirement that all guests over the age of 2 wear face masks. Disney also increased its cleanup measures, put parades and fireworks on hold, and even canceled Mickey’s Not-So-Scary’s Halloween party. Less park attendance means less revenue, while many of the security measures will result in higher operating costs.
the idea From Disney parks going back to business is positive. But reopens aren’t likely to match much revenue growth until the coronavirus pandemic is under control. Given that, investors must wait a few quarters until the parks, experiences and products segment can approach the income levels it has earned in the past. As a benchmark, the segment posted an 8% gain in revenue to $ 7.4 billion in the fiscal quarter that ended December 28. In the quarter ending March 28, segment revenue fell 10% to $ 5.5 billion. The next earnings report, scheduled for August 4, will include the months of park closings. And the subsequent report will include the tumultuous reopening period.
Therefore, while stocks may rise in the near term with optimism from Robinhood traders, investors in this consumer discretionary action should be vigilant when the earnings season comes. The actual recovery, for both Disney’s revenue and its shares, will not happen overnight.
