Disney shares are up more than 5% in premarket trading after the entertainment giant reported a strong recovery for its theme park business and added more streaming video subscribers than Wall Street expected.
However, the company is still vulnerable to the coronavirus pandemic.
Disney (DIS) stock has gained less than 1% this year, lagging behind the S&P 500 index, which has gained more than 20% since January 1. Until the pandemic subsides, Disney may struggle to make up lost ground.
Gains in video: If the Delta variant keeps people at home, Disney+, the company’s streaming service, could gain more subscribers. In the quarter ended July 3, the service grew to 116 million subscribers, exceeding Wall Street analysts’ expectations of 112 million.
However, the company’s massive theme park and movie businesses are still infected with the coronavirus, and the more contagious Delta variant could slow or reverse their recovery.
“We did not anticipate nor did I think anybody the resurgence of Covid with the Delta variant that would have such a significant impact on the marketplace,” CEO Bob Chapek told analysts on Thursday.
Chapek was responding to a question about how Disney would handle the release of “Free Guy” and “Shang-Chi and the Legend of the Ten Rings,” two potential blockbusters.
Both films will be released in theaters for 45 days before being released on Disney+, a departure from the company’s strategy for “Black Widow,” which was released in theaters and on the streaming service at the same time.
Disney can’t change its plans for “Free Guy” because of promises made when the film was acquired, while distribution commitments prevent “Shang-Chi” from being changed at the last minute, according to Chapek.
“The marketplace is rapidly changing,” Chapek added. “But at some point, you’ve got to put a stake in the ground and say, this is what we’re going to do, and that’s where we ended up on ‘Shang-Chi’ and ‘Free Guy.'”
Another issue: Scarlett Johansson, the star actress, has sued Disney, alleging that the company’s decision to release “Black Widow” on its streaming service reduced her compensation.
Delta poses a threat to theme parks as well.
The parks division’s revenue increased by more than 300 percent to $4.3 billion in the most recent quarter, according to Chapek, and bookings continue to show strong demand.
However, Disney World, one of the company’s largest parks, is located in Florida, a Delta variant hotspot. Other tourism companies, such as Southwest Airlines and Airbnb, have also issued warnings about Delta.
When inside Disney World and Disneyland, employees and visitors are required to wear masks and face coverings once again.
Investors are eager to reward Disney for its achievements. However, with Delta’s expansion continuing, it’s too soon to declare the company out of the woods.
The worst coronavirus outbreak in China in a year has prompted authorities to take drastic measures to prevent new infections.
While quarantining cities, canceling flights, and halting trade may bring the virus under control, these measures risk delaying an already precarious recovery, as my CNN Business colleague Laura He reports.
Despite the fact that the number of coronavirus cases remains low in comparison to recent outbreaks in the United States and Europe, China has resurrected its “zero-Covid” strategy.
As it tries to contain the spread, it has isolated some cities, shut down entertainment venues, canceled flights, and implemented mass testing — measures not seen at this scale since the pandemic began last year. Some trade was even halted this week at a major container port near Shanghai after a worker tested positive for the virus.
Some economists have already lowered their growth forecasts for the world’s second largest economy as a result of these drastic measures.
The impact: Goldman Sachs analysts expect China’s GDP to grow by only 2.3 percent in the third quarter compared to the previous quarter, far less than the 5.8% increase they had predicted.
