News of a potentially viable vaccine hitting the market in the coming months was enough to give Walt Disney (DIS 1.40%) a -- one would say -- shot in the arm. The stock surged 12% on Monday, hitting a 10-month intraday high along the way.
You have to go all the way back to Jan. 3 to find when shares of the media giant traded higher, so Disney is trading at pre-COVID-19 levels again. It's a welcome sight, of course, but the timing of the rally in the consumer bellwether isn't great. Disney will be posting its fiscal fourth-quarter results shortly after Tuesday's market close, and it's not going to be pretty. Keeping Monday's rally going or even justifying the heady gains will be a challenge unless Disney comes through with a blowout performance.
Image source: Walt Disney.
Not a flying toy
The silver lining here is that investors are already bracing for a crummy report. Analysts see a loss of $0.71 a share with revenue plunging 26% to $14.2 billion. The year-over-year drop on the top line isn't a surprise. There's weakness across most of its business segments.
- Ad revenue has been slow to come around for its media networks, and cord-cutting is eating into its cable revenue.
- Theme parks continue to be a drag on performance. Disneyland remains closed. Disney World opened two weeks into the fiscal quarter, but with a tight cap on daily attendance. Hong Kong Disneyland -- where it has a minority stake -- had to close for several weeks during the quarter following a COVID-19 outbreak in the region.
- Its studio entertainment business has been largely up on blocks with the corner multiplex struggling. Movie theaters started to open midway through the quarter, but Disney has pulled all of its major summer and fall theatrical releases.
- Disney+ will be a rock star, but even with more than 60 million paying subscribers the revenue it generates isn't enough to offset the weakness just about everywhere else.
Disney suffered a larger year-over-year plunge in revenue in its fiscal third quarter, but it's not likely to duplicate the positive earnings surprise it delivered last time out. The media stock didn't have the high sports programming tab that it faces this time around with the return of live sports for major pro leagues.
The irony in Monday's rally is that Disney's biggest success in the lull is Disney+ as a stay-at-home play. When the stock hit all-time highs in late November of last year -- less than two weeks after the launch of the service -- it was on the strength of Disney+ entertaining pandemic-battling homebodies. Disney stock has fared better than its fellow theme park, cruise line, and studio operators this year because of the success that Disney+ has had over the past year. The basket of once-hot stay-at-home stocks was slammed on Monday, but Disney got to have its mouse ears and wear them, too.
Disney will have a lot to prove this week. How the market reacts after what is expected to be a dud of a quarter will tell a lot about where we are when it comes to accepting the House of Mouse into the ranks of market darlings again.
