Could Disney Theme Parks Lose $2 Billion This Summer?
August 4th is judgment day for The Walt Disney Company. After the stock market closes today, Disney will announce its third-quarter earnings.
Sadly, this report brings with it a day of reckoning for the theme parks division. It’s the timing that hurts.
The quarter began on March 29th and ended in late June. Yes, Disney theme parks were closed virtually the entire time.
So, how big a hit could Disney take from its theme parks? Read on…
The Coronavirus Effect
When we look back at 2020, we’ll have no problem recognizing how Coronavirus impacted Disney theme parks.
When the company’s second-quarter earnings report came out, I said, “the situation will get worse before it gets better.”
At the time, I referenced Disney’s reported theme park earnings of $5.543 billion for the quarter.
This number was significantly lower than the $6.171 billion Disney gained for the same quarter in 2019.
So, the downward trend had already started, as international parks closed much sooner than Walt Disney World and Disneyland.
However, virtually everything remained closed from March through June, the body of Disney’s fiscal third quarter.
The only noteworthy exception was Shanghai Disneyland, which reopened on May 11th.
Folks, you can’t make money when everything has closed, which aptly summarizes the global economy this summer.
Setting Quarterly Expectations
How poorly did Disney do during the third quarter? We won’t know for sure for a few hours.
Several analysts have published their predictions, though. Before you watch them, you may want to cover your children’s eyes. It’s grim.
Refinitiv, the parent company of Reuters, suggests that Disney will lose $2 billion for the quarter.
For perspective, Disney earned $1.7 billion during the third quarter last year. That’s a net change of $3.7 billion in a calendar year.
How big a change is that? According to Forbes, $3.7 billion is the overall value of the Los Angeles Lakers franchise!
Yes, Disney could lose the equivalent of the Los Angeles Lakers’ entire franchise! Nobody can afford that kind of sudden financial loss.
Let’s add some context here so that you’ll appreciate Disney’s plight.
The company estimated that it lost $1 billion due to Coronavirus during the second quarter.
So, Disney could lose twice as much during the third quarter, and even that estimate may prove low.
Ordinarily, I shrug off pessimistic forecasts. Unfortunately, I believe that this estimate is reasonable.
The Big Picture
Think about the situation from an operational standpoint.
Hong Kong Disneyland reopened on June 13th but had to close again on July 15th.
That means it will suffer more during Disney’s fourth-quarter earnings report, too, but that’s three months from now’s problem!
For the current quarter, Hong Kong Disneyland earned revenue for barely two weeks. At Shanghai Disneyland, the park returned for only half the quarter.
Even then, both places functioned at partial capacity. Disney must limit attendance to honor social distancing measures.
Here’s the scary thought. I just mentioned the good news for the quarter. Disneyland closed on March 14th, which means it earned no revenue.
Even Downtown Disney didn’t reopen until July 9th. So, the company gained virtually no money from the Happiest Place on Earth.
Disneyland Paris and Walt Disney World also closed before the end of the second quarter. The former park remains unopened to this day.
At Walt Disney World, none of the parks reopened until July. Some Disney Vacation Club resorts did return in mid-June, though.
These hotels represent one of Disney’s primary park revenue streams for the third quarter. And even they were only open for a small portion of the time.
As for Tokyo Disney Resort, The Oriental Land Company owns and operates this facility. The company licenses the rights from Disney.
Presumably, Disney discounted these fees, but nobody’s sure yet.
Bracing for the Worst
What I can say about the situation will bum you out. The Oriental Land Company reported its earnings last week.
Net Sales fell from $120.5 million to $6.1 million. That’s a 95 percent drop. When a company’s revenue drops 10 percent, the CEO gets fired.
Nobody expects to earn nine figures and then ends up with seven figures. It’s a blueprint for financial ruin.
The news is eerily similar at Universal Studios. NBCUniversal also recently reported its pandemic-affected theme park revenue.
In terms of actual dollars lost, Universal takes the cake. Universal Studios earnings fell a whopping 94 percent, which is horrifying enough on its own.
However, you’ll feel even worse when you read that earnings dropped from $1.46 billion to $87 million. That’s a shortfall of $1.373 billion!
Universal executives freaked out over the massive financial losses so much that they closed several attractions indefinitely.
Also, Universal delayed construction on Epic Universe. That theme park is in a holding pattern for at least a year.
Third, many Universal employees suffered layoffs. The company won’t confirm numbers, but it’s the second wave thus far. So, that’s not great.
What to Expect from Disney
Disney’s situation is somehow worse and better.
The company’s theme park division features more than just theme parks. That’s why Disney has named it Parks, Experiences and Products.
Unfortunately, many of the other parts of the core business are things like Disney Cruise Line, Adventures by Disney, and the Walt Disney World water parks.
All of them were also closed throughout the quarter. So, there’s not much cause for optimism here.
Here’s an important number to remember. During the third quarter of 2019, Disney earned $6.575 billion from its theme parks division.
This year, the number might be half of that or less. Yes, Disney could feasibly drop under $3.5 billion this quarter, possibly even much lower.
Stay tuned to MickeyBlog for the rest of the week. We’ll report every aspect of this story as soon as Disney announces its third-quarter revenue.
While a potential $2 billion loss sounds outrageous, it’s not at all unreasonable given what we know.