Disney Stock Stalls Despite Impressive Earnings, The Reason Is Simple

After a strong rally last week following a better than expected earning’s report, the Walt Disney Company’s stock has reset to pre-earning’s report numbers. What is keeping the Disney stock from taking advantage of these positive reports and maintaining momentum for longer than a few days? The answer appears to be the same issue that’s been plaguing the country for 18 months – covid.

Disney closed trading today, Tuesday August 17th, at $175.83 a share. Down from a high up over $186 a share late last week. The stock jumped on news that the theme parks were profitable for the first time since the pandemic began and on better than expected revenue and earnings per share. The weekend brought even more good news, with Disney’s Free Guy over performing at the box office. Disney’s next big release, Marvel’s Shang Chi and the Legend of the Ten Rings is receiving extremely positive word of mouth after its premier yesterday and box office forecasts look strong for its debut next month. The company also announced the opening date for the upcoming Space 220 restaurant in EPCOT (October 1st) and announced an upcoming ticketed event for Walt Disney World this holiday season. 

All of this is positive news for the company and should have continued to boost the stock following last week’s Q3 earnings report. While the exact cause of a company’s stock movement is never truly known, it seems that the simmering covid-19 pandemic is keeping a lid on Disney’s stock and making it really difficult for the company to build much momentum.

At the same time, Disney has maintained a relatively strong position with their stock, considering how vulnerable the company’s divisions are to a continued, or God forbid a spiking, covid situation. The biggest money makers for Disney has always been their theme parks and cruise line, while those continue to ramp up, there is some fear that new covid variants could force the company to stall or reverse reopening plans. The pandemic has also taken a huge toll on Disney’s box office revenue, even while the company tries to innovate their release structure to secure as much benefit as they can from each release.

While Disney’s lifeblood, theme parks and box office, are susceptible to covid outbreaks, it’s direct to consumer division (streaming services Disney+, ESPN+, Hulu) have benefited from people being stuck at home. This has kept Disney afloat while the other divisions struggle to keep their heads above water. This fact underscores how lucky Disney was to release Disney+ when they did, November 2019, just a few months before the pandemic struck. Without this division, Disney would have had nothing to buoy itself over the past year and a half.

The pandemic has definitely improved since last year, with a number of highly effective and safe vaccines helping to improve the situation dramatically earlier this year. However, vaccine hesitancy and misinformation have kept large numbers of people from getting vaccinated and is allowing for the virus to change and create more dangerous and transmissible variants. Florida has seen some of the largest surges of new hospitalizations and deaths related to covid all summer. A troubling sign for Disney as the state is home to the Walt Disney World resort and the main sailing point for most of their cruise ships. The state has been a hotbed for death and illness related to covid and this worries investors.

It is likely that Disney’s stock will remain held in a stranglehold until we see some large boosts in vaccination rates and reasonable covid precautions being adopted universally. Disney requires masks to be worn indoors at their theme parks and are requiring non-union employees to be vaccinated. Unfortunately, other lesser-known parks in the region, like Universal Studios Orlando, have no such requirements. Thankfully those parks have drastically lower attendance, so less guests will be subject to their lower levels of covid safety, but every bit helps and it would benefit the local and national economy if even the bare minimum of mandates were required.

Until then, the cycle will likely continue and Disney, along with every other entertainment company, will likely see their ability to see longterm rallies stifled. Time will tell if Florida, and its neighbors, can get their act together and help to get these companies, these employees, and their guests, to a place where they can grow freely and safely.