Disney earnings preview: A sprawling media empire in the deep end

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In late February, when current Disney chairman Bob Iger stunned the business world with news of his sudden resignation as chief executive, the move was portrayed as a matter of good timing.

“With the successful launch of Disney’s direct-to-consumer businesses and the integration of Twenty-First Century Fox well underway, I believe this is the optimal time to transition to a new CEO,” Iger said in a statement, referring to the highly anticipated rollout of its Disney+ streaming service and the company’s $71 billion acquisition of Fox and its prized characters, movie studios, and television networks.

Those moves—along with its previous gobbling up of Pixar, Marvel, and Lucasfilm—had turned Disney into perhaps the strongest legacy media company in the U.S. Incoming CEO Bob Chapek, the veteran leader of the company’s lucrative parks and cruise division, would take over in a prosperous period of stability.

Or so it seemed. On March 16, just three weeks after the CEO announcement, Disney’s theme parks were indefinitely shuttered out of concern of the novel coronavirus pandemic. Since then, strict worldwide lockdown measures have intensified and Disney’s stock price has dropped to almost half of its 52-week high.

On Tuesday May 5, investors and industry observers alike will be listening to Chapek’s first quarterly earnings call as CEO to gain insight into COVID-19’s impact on Disney’s broad and diverse collection of businesses.

While virtually every company is grappling with the effects of the virus in some capacity, Disney appears more vulnerable than most. Almost every segment of its vast empire is particularly reliant on assembling people. Along with its 14 theme parks and four cruise ships, Disney lays claim to retail stores, Broadway shows, a live (and largely sports-less) ESPN, and shuttered movie theaters (which has resulted in the delayed release of tentpoles like a revived Mulan and the Scarlett Johansson-starring superhero flick Black Widow).

Even Disney+ is susceptible. Though the streaming service attracted 50 million subscribers worldwide just five months after launch (in a landscape of record streaming viewership), most movie and television production is shut down across Hollywood. (Though its big hit, the Star Wars spinoff The Mandalorian, finished production of its second season in time.) The ramifications of that affect not just Disney+ but Disney-owned networks like ABC and FX, too.

“The deleterious effect of the pandemic should manifest across [Disney’s] far-flung businesses,” wrote CFRA media analyst Tuna Amobi in a research note, “including the closure of its worldwide theme parks, suspension of its cruise and theatrical shows, delays in its worldwide theatrical releases and supply chain disruptions, as well as negative impact on ad sales and disruption in content availability (including the cancellation of sports events and shutdown of film/TV production).”

Wall Street analysts estimate that Disney’s Q2 earnings per share will come in at $0.83—down 78 cents, or 48%, from a year earlier. Revenue is expected to be up nearly 21% to $18.3 billion, though it’s important to note that the company’s fiscal quarter ended March 31, just a few weeks after serious COVID-19 disruptions began to affect its business.

“It’s pretty clear to investors that Disney sits at the center of the storm for COVID,” Bernstein Research analyst Mike Morton wrote in recent note, “whether we’re talking parks or studio and the impact on people visiting movie theaters to a knock-on effect or a recession and what that that will stimulate for cord cutting.”

Disney has access to more than $13 billion of credit in the event that things get dire. The Burbank, Calif. company closed a $5 billion agreement with Citibank in April. Neil Begley, a bond and credit analyst and vice president at Moody’s, wrote in a March report that “Disney has significant liquidity to help carry it through this ‘black swan’ crisis.”

But some Wall Streeters remain concerned. Leading media analyst Michael Nathanson on Monday downgraded his rating of Disney’s stock from “buy” to “neutral,” lowering the company’s price target by $8 to $112.

“While Disney has the advantaged assets to win in this new world, we fear that the uncertainty of the present situation creates significant and unrivaled earnings risk for the foreseeable future,” he wrote in a report. “We believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening.”

More must-read stories from Fortune:

—How CBS legal drama All Rise made its virtual coronavirus episode
The Last Dance director is racing to finish episodes
Billions creators on releasing season five of the New York drama in uncertain times
Ricky Gervais on releasing After Life season two in a global pandemic
Chris Hemsworth calls Extraction the “most exhausting” shoot of his career

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