Disney (NYSE:DIS) shares are down substantially because of the novel COVID-19 coronavirus pandemic. It appears every headline on the House of Mouse in the last few months is negative, which raises questions about recency bias among sellers.
Famed investor Ray Dalio often says, "most people tend to be biased by their recent experiences." The current scenario playing out for Disney may be causing shareholders to overshoot on the selling, possibly creating a buying opportunity.
Can it get any worse?
The bad news started for Disney when it had to close its parks in Asia because of the coronavirus outbreak. The Burbank, California company disclosed an internal estimation that said it would lose $175 million in operating income (for the second quarter of this year) should the parks remain closed for two months. Not so awful for a company that generated $3.8 billion in operating income in the second quarter of last year. But that was just the beginning.
On Feb. 25, then CEO Bob Iger announced he would be stepping down from that position but staying with the company as Executive Chairman through 2021. The markets didn't seem to like the change, because Iger has been highly successful, and many expected that he'd stay on as CEO until 2021. Now, in the middle of a crisis and the rollout of Disney+, it causes investors to worry about a drop-off in leadership quality.
Then the NBA suspended its season on March 11 after one of its players tested positive for the coronavirus. A succession of sports leagues followed. The last NBA season generated over $1.5 billion in revenue for the TV networks. That has left a void at ESPN, where the network is now scrambling to find programming to fill airtime.
Finally, as governments started recommending restrictions on public gatherings, Disney decided to close the rest of its parks temporarily. What's more, it will be paying park employees during this time, creating a scenario where revenue will decrease by much more than expenses will.
Overall, the pandemic has forced Disney into some difficult situations. When facing an elusive curveball, the best approach is to wait for a better pitch. That appears to be the course Disney is taking -- consulting with local authorities and following those recommendations on closures of certain operations.
Potential good news
The first piece of good news could be regarding the launch of Disney+ in additional countries near the end of March. The list of countries includes some of the hardest hit from the pandemic, including Italy, Spain, France, and Germany. Citizens from all those countries are spending a great deal of time at home and, no doubt, binging on a tremendous amount of content. Those consumers will be delighted when Disney+ arrives on the scene.
The second piece of information could come from sports leagues announcing the carrying on of their seasons. They may need to play games without an in-person audience, but they will indeed televise them. The amount of ad revenue collected from these telecasts could leap beyond any previous record because of the soaring demand for in-home entertainment.
Finally, and most importantly, progress on the war against the coronavirus will be celebrated by the public. A turn in direction would do wonders for consumer sentiment. It could even spark an increase in economic activity. If people feel confident the pandemic will run its course by the end of summer, they can start booking vacations for the last quarter of the year.
What this means for investors
The coronavirus outbreak is disrupting lives for individuals and businesses around the world, and especially for Disney because so much of its services are about bringing people together. Whether it be at one of its parks, cruise ships, or in a movie theater. Disney brings people together and creates joyous memories that sometimes last generations.
That connection it holds with its customers is not going to be broken by a temporary halting of operations, and especially not so if it's for the greater good. Admittedly, the stock may fall a bit further in the short-term, but the upside far outweighs the risks for this blue-chip stock. I think investors should look to start buying shares.