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Why Walt Disney Stock Dropped 17% in March

By John Ballard – Apr 5, 2020 at 4:20PM

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Investors worry about loss of revenue while parks are closed.

What happened

Shares of Walt Disney (DIS 3.70%) lost 17.9% in value last month, according to data from S&P Global Market Intelligence. The stock has fallen more than the broader market year to date, since Disney relies heavily on having people visit theme parks and go to see movies. 

Over the past month, Disney has pushed back its entire upcoming movie release schedule until later in the year, in response to the closure of theaters across the country over the COVID-19 outbreak. Disney has also closed its theme parks in the U.S. for an indefinite period. 

A vacant Disney theme park.

Image source: Walt Disney.

So what

Disney held $6.8 billion in cash on its balance sheet at the end of December, with total short- and long-term debt totaling $48 billion. The company issued another $6 billion in debt during March to fund its near-term operations. That will bring its cash up to more than $12 billion, which should buy Disney some time until its parks reopen.

However, Disney isn't letting the challenging circumstances keep it from doing its part to help others during the crisis. Following the closures of the parks, the company donated 270 tons of excess food to food banks, gave 150,000 rain ponchos to MedShare to help hospitals in need, and sent more than 100,000 masks to New York, California, and Florida. 

Now what

On the bright side, Disney's new streaming service experienced a spike in demand after the self-quarantines went into effect. Disney+ is continuing to expand geographically, recently launching in Western Europe and India. Disney has also released Frozen 2 and Onward on Disney+ ahead of schedule. 

But growth in Disney+ won't offset the loss of revenue at the theme parks. Analysts expect Disney to lose about $3 billion in revenue from the parks and hotel closures. Disney's parks, experiences, and products segment generated over $26 billion in revenue in fiscal 2019, which ended in September.

It's unknown when the theme parks will reopen, but Disney is currently accepting reservations to Walt Disney World Resort for June 1 and later, which indicates that the parks will probably remain closed through at least May. 

John Ballard owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short April 2020 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.

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