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Why Disney's Shares Rose 12.8% in August

By John Bromels – Sep 5, 2020 at 10:52AM

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The company's big bet on streaming has paid off early.

What happened

Shares of entertainment juggernaut Disney (DIS 0.85%) were up 12.8% in August, according to data provided by S&P Global Market Intelligence. Virtually all of the increase came on Aug. 5, after the company reported its third quarter FY2020 results. 

Even with the double-digit percentage gain in August, Disney's shares are still down more than 8% year to date, badly lagging the S&P 500, which is up about 6% for the year.

A roller coaster speeds along a track.

Image source: Getty Images.

So what

It's not often that a 48% year-over-year drop in revenue and a 94% year-over-year collapse in adjusted per-share earnings prompts a stock price pop, but that's what happened here. With theme parks, resorts, cruise ships, and movie theaters across the globe either closed or operating at severely limited capacity due to the pandemic, most of Disney's business lines have been clobbered.

The big exception is the company's streaming services. When Disney+ premiered, the company's hope was to reach 60 million subscription accounts in about five years. Instead, it got there in less than nine months, with 60.5 million subscribers already signed up. Factor in Hulu and ESPN+, also owned by Disney, and the company boasts more than 100 million streaming subscribers. That was likely the primary reason for the stock's upward post-earnings move.

Now what

Of course, all of this was expected: we're in the middle of a pandemic, with Florida -- home of Walt Disney World -- a particularly hard-hit area. We're also in the midst of a recession. Nobody's surprised at how poorly Disney has fared overall. Few are surprised at how well its streaming services are doing, with so many people stuck at home for prolonged periods this year.

Disney's massive stable of media content and incredible brand appeal should help it bounce back quickly once the pandemic subsides. Of course, there's no telling how long that will take, but long-term investors should take it in stride.

John Bromels 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 October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

Stocks Mentioned

Walt Disney Stock Quote
Walt Disney
DIS
$99.43 (0.85%) $0.84

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