John Hodulik of UBS discusses the firm's downgrade of Disney to neutral from buy, as the company's theme park revenue is being hard hit by the coronavirus-related lockdowns.
On Monday, Disney began furloughing workers, temporarily stopping pay to as many as 100,000 workers, according to an estimate by the Financial Times. (Disney won’t comment on the number of furloughs).
Over the last few weeks Disney has laid out its plans to impose unpaid leave, first for some non-union employees, then in a subsequent deal with 43,000 union workers. The media giant will pay 100% of health insurance costs for workers currently covered for up to 12 months. While the majority of those furloughs are at the theme parks, they also extend to all of Disney’s other divisions, including the movie studio and TV division. Disney’s also asked its senior executives to accept a pay cut, with no set end.
Disney’s extensive furloughs stand in sharp contrast to the other two media giants – Comcast, which owns NBCUniversal, and AT&T, which owns WarnerMedia – which haven’t yet announced any furloughs or layoffs.
These are the three largest media conglomerates, in a category above all the others: Disney’s market cap is $185 billion, Comcast’s is $169 billion, and AT&T’s is $222 billion. They do face some similar challenges: all three have movie studios that are suffering from the closure of theaters and all are seeing their ad revenue plummet as live sports has been halted. And all three are working to get ahead of the cord-cutting trend and have new services designed to own that direct-to-consumer relationship.
But the finances of these companies are incredibly different. Parks and Resorts is Disney’s largest division, responsible for 35% of its revenue in 2019. That division includes not only theme parks and resorts, but also a cruise line. In contrast, Comcast derived only 5.4% of its revenue from parks such as Universal Studios, and AT&T doesn’t own any parks.
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