The good news is that The Walt Disney Company (NYSE: DIS) made money in 2020. Disney reported a quarterly gross profit of $4.474 billion and a quarterly operating income of $146 million on 31 December 2020.
The bad news is that Disney (DIS) made less money in 2020. it reported a quarterly gross profit of $7.843 billion and a quarterly operating income of $2.685 billion on 31 December 2019.
Disney survived coronavirus, but it took some big hits in income and revenue in 2020. For instance, Disney’s quarterly revenues fell from $20.877 billion on 31 December 2019 to $16.426 billion a year later.
Disney Shrinks
The Walt Disney Company (DIS) shrank in 2020. Stockrow estimates Disney’s revenue growth fell by 41.87% in the quarter ending on 30 June 2020.
The revenue growth shrank by 23% in the quarter ending on 30 September 2020 and 22.17% in the last quarter of 2020. Plus, Disney reported a quarterly operating loss of -$4.996 billion on 30 June 2020. The quarterly operating loss shrank to -$855 million on 30 September 2020.
Similarly, Disney’s quarterly operating cash flow fell from $1.63 billion on 31 December 2019 to $75 million on 31 December 2020. Conversely, the quarterly ending cash flow rose from $6.874 billion on 31 December 2019 to $17.112 billion on 31 December 2020.
Disney Can Generate Enormous Amounts of Cash
Disney (NYSE: DIS) can still generate enormous amounts of cash. I think this cash could come from Disney+ and other video streaming ventures. Thus, one of Bob Iger’s biggest gambles, going all in on streaming, is paying off.
Notably, Disney’s cash and short-term investments rose from $6.833 billion on 31 December 2019 to $17.068 billion on 31 December 2020. I think the cash shows Disney has good management that hoards cash in bad times.
Consequently, Disney could retain most of its value during the COVID-19 pandemic. In 2020, Disney’s total assets rose slightly from $200.948 billion on 31 December 2019 to $201.888 billion on 31 December 2020.
However, Disney had to borrow enormous amounts of money to survive 2020. Disney reported a quarterly financing cash flow of $1.117 billion on 31 December 2019. The quarterly financing cash flow rose to $5.499 billion on 31 March 2020 and $8.303 billion on 30 June 2020.
The quarterly financing cash flow fell to -$6.439 billion on 30 September 2020 and -$333 million on 31 December 2020. As a result, Disney’s long-term debt grew from $38.057 billion on 31 December 2019 to $52.878 billion on 31 December 2020. I consider Disney a great company because it can generate enormous amounts of cash in the worst of times, and borrow enough to survive.
Will the Disney Theme Parks Die?
There is one segment of Disney’s business that coronavirus can kill; theme parks.
The company admits the Disney Parks, Experiences, and Products segment lost -$119 million in the quarter ending on 31 December 2020. Theme Park Insider estimates, Disney Parks revenues fell by 53% in 2020.
However, the Disney Parks, Experiences, and Products business still generated $3.588 billion in revenue in the quarter ending on 31 December 2020. The segment generates revenues because it includes merchandising and theme parks.
Notably, the business generated $3.588 billion in revenues even though Disneyland has been closed since march 2020 and Walt Disney World operates at reduced capacity. Moreover, Disneyland Paris and Hong Kong Disneyland are closed.
Hence, I have to wonder thus Disney need theme parks? It can generate amounts of cash and stay in business without them. I think selling the theme parks or spinning them off into a separate company could be a smart move for Disney.
On the other hand, I do not think CEO Bob Chapek wants to risk all the criticism he will receive if he tries to get rid of the theme parks. Yet Disney management will have to decide about the parks at some point.
Disney+ Pays off
Disney+ subscriber growth is beating the goals Disney managements set for it.
Disney (DIS) claims that Disney+ had 94.9 million subscribers on 2 January 2021, The Verge reports. The Disney+ subscriber base grew from 86 million on 2 December 2020. Disney management had hoped Disney+ could gain 90 million subscribers by 2022.
Thus the Disney+ subscriber base grew by 8.9 million in a month. Interestingly, Verge writer Chaim Garenberg speculates that Disney+ had over 100 million subscribers in February 2021.
Disney (DIS) already has over 100 million streaming video subscribers if you add the company’s other services. Disney claims Hulu had 39.4 million subscribers and ESPN+ had 12.1 subscribers on 2 January 2021. Thus, I calculate Disney’s streaming services had 146.2 million subscribers on 2 January 2021.
These figures do not include STAR, the new international streaming service that combines Hulu and Disney+. They launched STAR on 23 February 2021. STAR is not available in the US, where subscribers need to order both Hulu and Disney+ to get everything on STAR, The Verge reports.
On the other hand, Americans can order packages that include Disney+, Hulu, and ESPN+ for $12.99 a month. Therefore, Disney is a growing company with a growing business.
Does Mr. Market Overprice Disney?
I consider Disney an excellent company that grows and generates enormous amounts of cash. However, I think Mr. Market overpriced Walt Disney (DIS) at $195.20 on 1 March 2021.
However, I think Disney is a growing company that is a growth stock. For instance, Mr. Market paid $119.98 for Disney on 2 March 2020.
I think Mr. Market overprices Disney because it is not paying a dividend. Disney last paid a quarterly dividend of 88¢ on 16 January 2021. Hence, Disney has a good dividend history.
If you are looking for a great growth stock in streaming video, I think Disney is a superb choice. However, Disney is no longer a good or income stock, but it could be again.
Originally published at https://marketmadhouse.com on March 1, 2021.
