Will Disney Stock Get Hammered?

[lugnut33]

Between "Mars Needs Moms" and the earthquake in Japan Disney is going to have to be taking some huge losses when this quarter ends. Shouldn't that be driving the stock price down, and yet it's currently trading right up near its high.

 

[nytimez]

Between "Mars Needs Moms" and the earthquake in Japan Disney is going to have to be taking some huge losses when this quarter ends. Shouldn't that be driving the stock price down, and yet it's currently trading right up near its high.

The shutdown in Tokyo won't impact Disney's stock prices too much because just about all of the liability there is assumed by Oriental Land, which owns and operates the parks under license from Disney.

And as big a bomb as Mars Needs Moms was, it won't have too big an impact on the bottom line as long as the company's other films and core businesses continue to remain strong... and most people know they're in for a ton of cash later this year with a few films that are pretty much going to be blockbusters right out of the gate (Pirates and Cars2 come to mind).

 

[Horace Horsecollar]

Between "Mars Needs Moms" and the earthquake in Japan Disney is going to have to be taking some huge losses when this quarter ends. Shouldn't that be driving the stock price down, and yet it's currently trading right up near its high.

Wall Street is already aware of Disney's prospects for revenue and earnings for this quarter, and the current stock price already reflects the expected earnings. Wall Street seems to see value in Disney as an investment, and the stock price reflects this. If the actual earnings for this quarter come in lower or higher than expected, there will be some adjustment.

I don't agree that "Disney is going to have to be taking some huge losses when this quarter ends."

In the movie business, there are always some blockbusters and some duds. The goal is to make a decent profit for the year.

The Walt Disney Company earns a percentage from Tokyo Disneyland, which is owned and operated by Oriental Land Company. Yes, the revenue to Disney will be down this quarter to reflect the weeks that the park is closed. It may continue to be down if attendance declines in the aftermath of the tragedy in Japan. But Oriental Land Company will still send big checks to Disney.

 

[doconeill]

I don't have the reference to cite any more, but there was an analyst who said that even though TDR is owned and operated under license by Oriental Land Company, income from that license still represented 18% of DisneyPark's operational income.

That's a sizable loss.

 

[Donut23]

.......don't forget the expectations for DVC sales in Hawaii are now down since they had anticipated a high number of Japanese buyers.

 

[nytimez]

I don't have the reference to cite any more, but there was an analyst who said that even though TDR is owned and operated under license by Oriental Land Company, income from that license still represented 18% of DisneyPark's operational income.

That's a sizable loss.

I won't dispute the number -- I don't know what it is, but even if it was 18 percent, they're not losing 18 percent of their operational income. The park will reopen, and will generate income when it does.

In addition, I don't know specifically if Oriental Land is on the hook for certain payments whether the park is open or not.

.......don't forget the expectations for DVC sales in Hawaii are now down since they had anticipated a high number of Japanese buyers.

This is true -- but I think this is a longer-term concern, not something that's going to drive down numbers this quarter.

But really, who knows. The market is a fickle... um... witch.

 

[doconeill]

I won't dispute the number -- I don't know what it is, but even if it was 18 percent, they're not losing 18 percent of their operational income. The park will reopen, and will generate income when it does.

Right, they won't lose 18% of annual income...but they could be losing 18% of their income over however long it takes. Even if its only a quarter, that's still a sizable hit.

And recovery of those parks may be slow...they've sent international CMs home from what I understand.

 

[nytimez]

Right, they won't lose 18% of annual income...but they could be losing 18% of their income over however long it takes. Even if its only a quarter, that's still a sizable hit.

And recovery of those parks may be slow...they've sent international CMs home from what I understand.

Definitely. And you can bet business there will be slower then expected for some time now.

It just remains to be seen how significant the hit will be in relation to the overall Disney Co. cashflow.

Also, while Japanese tourists aren't a big part of WDW's demo, they make up a more significant portion of business in Anaheim -- so that business may suffer as well.

 

[Horace Horsecollar]

Keep in mind that advertising is recovering, which should really help Disney's Media Networks business segment (especially ABC and ESPN). That's already the biggest profit engine at The Walt Disney Company.

After a couple of fairly flat years, WDW should do better in the fiscal year 2011. The Disneyland Resort will open The Little Mermaid ride and will continue to benefit from the other enhancements at DCA, including World of Color. Add to that the launch of the huge Disney Dream cruise ship, with stateroom rates way above the industry average, and Disney's Parks and Resorts business segment should do well, even if there's decrease in the size of the royalty payment from Oriental Land Company.

Anyone who expects "huge losses when this quarter ends" from Disney isn't looking at the whole picture.

 

[SmilingGrump]

Disney is HUGE and is FAR more then parks and cartoons. Though there are lists available online that are more updated, the following webpage gives a more graphical breakdown (just remember that it's circa 2008 and one of the notable missing holdings is Marvel): http://www.sourcewatch.org/index.php?title=Disney_Holdings

I expect that if there's no NFL season this year that it would affect Disney stock more then Tokyo Disney's shutdown. Personally, I think that's sad but reality's harsh sometimes.

 

[Uncleromulus]

In agreement with most everybody else--Disney won't get "hammered" just due to Tokyo and that one movie.
Will be interesting to see if, in fact, the stock goes UP!!!

 

[doconeill]

Due to the fun ways a conglomerate corporation handles its money internally, certainly Disney Corporation isn't going to suffer, so it may not make much different to the stockholders (other than alarmists).

But whether Disney Corporation is willing to offset the loss to DisneyParks (if significant) is a whole different thing.

Hopefully their memories are long enough to remember that DP has helped prop up the company when Studios, etc. weren't doing so well...

 

[puntagordabob]

Between "Mars Needs Moms" and the earthquake in Japan Disney is going to have to be taking some huge losses when this quarter ends. Shouldn't that be driving the stock price down, and yet it's currently trading right up near its high.

Moms might have been a failure at the box office...but lets be honest it will make its money in dvd/bluray sales etc.... and isnt a Disney movie that fails some other smaller companies dream $take$ at the box office?

 

[doconeill]

Moms might have been a failure at the box office...but lets be honest it will make its money in dvd/bluray sales etc.... and isnt a Disney movie that fails some other smaller companies dream $take$ at the box office?

If it doesn't make back everything it cost to produce and market, ain't no studio that would want it...(except in Hollywood accounting they can take the proceeds of a big blockbuster and charge the bomb against it...in effecting wiping out the blockbuster's profits, even though the studio still made money overall...)

Disney may also consider slim margins compared to expectations as "failures", but by all accounts (and accounting) right now MNMs is a major failure even for Disney.

 

[OldsDr]

I don't have the reference to cite any more, but there was an analyst who said that even though TDR is owned and operated under license by Oriental Land Company, income from that license still represented 18% of DisneyPark's operational income.

That's a sizable loss.

I believe DisneyParks is their lowest income division. Even though it might not be pocket change I believe if ESPN lost 18% it would be a tremendously larger loss. Like someone else said it is not permanent.

 

[doconeill]

I believe DisneyParks is their lowest income division. Even though it might not be pocket change I believe if ESPN lost 18% it would be a tremendously larger loss. Like someone else said it is not permanent.

Far from it. It is second, behind the media networks division.

Parks and Resorts (a.k.a. DisneyParks) was over 28% of the total income for FY2010. The studios were something like 18%.

 

[Horace Horsecollar]

Here's Disney's financial summary:

http://corporate.disney.go.com/investors/annual_reports/2010/financials_highlights.html

Getting back to the OP's concern that the disasters in Japan would lead to "some huge losses when this quarter ends," the important thing to understand here is that even if Oriental Land Company (OLC) ends up with an unprofitable year for the Tokyo Disneyland Resort, they still have to pay their royalty to The Walt Disney Company (TWDC).

Here are the royalty rates according to a recent blog item at Forbes:

Under the licensing agreement that Disney reached with OLC group in 1979, OLC agreed to pay 10% of its admission revenues and 5% of its food and souvenir revenues as royalty to Disney.​

It's pure profit for TWDC because TWDC doesn't pay any operating expenses of the Tokyo Disneyland Resort. The royalty goes to the revenue and operating income of Parks & Resorts business segment.

The 2011 royalty from OLC will undoubtedly be lower than the 2010 royalty, but it will still be a profit for TWDC. The amount of the reduction between 2010 and 2011 is likely to be made up for many times over by increases in earnings in Disney's Media Networks segment due to higher spending by advertisers.

 

[Polydweller]

While one can argue about this in the abstract the real proof is in the actual results on the stock market. I own a lot of Disney so I watch it. The stock has not been affected at all by the news. Like almost all others it declined immediately after the tsunami and has since recovered its value.

The movie would have no impact because this is after all a $34b company so $100m or so is only about .3% of revenue or 1.3 cents per share. Not even noticeable in the normal ups and downs of daily trading. The Tokyo theme park is talking about reopening late this month and will sometime before summer. The loss of revenue again is negligible in a company this size and this diversified.

So the news has had no impact and given investors would already have reacted to that it won't in the future. Investors take a broader view than just two pieces of news.

 

[Horace Horsecollar]

"4 reasons to bet on Disney Stock" at CNNMoney.com / Fortune on April 4, 2011:

http://finance.fortune.cnn.com/2011/04/04/4-reasons-to-bet-on-disney-stock/