How a Reopening of Shanghai Will Help Disney Stock

Walt Disney Co. (NYSE: DIS) is due for some good news after seeing mixed earnings last week. The company is in the process of reopening its parks around the world with new safety measures in place. If everything goes according to plan, this could be a tremendous boost for this blue-chip stock.

Out of the 30 Dow Jones industrial average stocks, Disney currently ranks in the bottom third for its year-to-date performance. The Mouse House has not kept pace with the Dow or the S&P 500, or most of the stock market for that matter, in terms of its recovery. It is one of the Dow components hurt the worst by this COVID-19 pandemic. Disney shares are down over 24.5% year to date.

However, as a return to normalcy, or a new normal, becomes more realistic, optimism is picking up. Hopefully, optimism is the only thing that is contagious at the “Happiest Place on Earth.” Although this company still faces headwinds, it is making progress. Withstanding the obvious pandemic setbacks, Disney is working toward reopening.

The question of how Disney will operate in this coronavirus-crisis environment is tough. With Shanghai Disneyland about to come online, everyone will get a chance to see the new normal.

Reopening China

The reopening of Shanghai Disneyland is underway. Within a matter of minutes, tickets to Monday’s reopening sold out as Chinese consumers showed no fear and jumped at the opportunity to visit the park.

This is the first time that the theme park will be open since it closed on January 25. Also, this will be the first major theme park to reopen since the COVID-19 shutdowns. However, some big changes are taking place at the park.

All visitors will be required to wear face masks at all times, unless they are eating. Social distancing will be a required precaution as well, which will in turn drastically reduce attendance.

Along with this, there will be no selfies with Disney characters. Crowd-related functions, including children’s play areas and theatre shows, will remain shut down as well. These are just a few of the changes.

Note that before anyone may enter the park, they will have to prove that they don’t pose a risk of spreading the coronavirus. Visitors will have to complete a temperature check, as well as submit their personal Health QR code (China’s contact tracing program). Only guests with a “green” Health QR code will be allowed to enter the park.

In terms of the ticket prices, the weekday rate is ¥399 (roughly $56) and the weekend rate is ¥499 ($70). While Monday’s tickets sold out within minutes, other days within the reopening week were sold out as well.

Usually, this park sees about 80,000 visitors per day, but with social distancing measures in place, this number gets knocked down significantly. The government-mandated cap is 30% of its operating capacity, or about 24,000 visitors. CEO Bob Chapek noted last week that the park initially would operate well below the 80,000 capacity and then ramp up to reach the 30% cap over the course of several weeks.

The Numbers

For Disney, the numbers matter very much. Whether it is attendance numbers, ticket prices or subscriber counts, each plays a critical role in Disney’s business.

In its most recent earnings report, Disney had a relatively low bar to clear. Most of the pessimism surrounding the closing of Disneyland, Walt Disney World and other theme parks already had been priced into the stock. Essentially, the numbers from its theme parks, media networks, movie theaters and more were terrible, but optimism about its streaming service, Disney+, acted as somewhat of a counterbalance.

This past week, Disney announced that it had 54.5 million Disney+ subscribers as of May 4. Ultimately, this signaled a slowdown in growth over the past month. Previously, Disney announced that it passed the 50 million mark on April 8, which was up from its 33.5 million on March 28. At the end of the company’s first quarter in December, Disney+ had 26.5 million subscribers.

Disney also reported that Hulu has 32.1 million total subscribers, an increase from 30.4 million from last quarter and 25.2 million a year ago. ESPN+ had 7.9 million subscribers, up from 6.6 million at the end of the first quarter and from 2.2 million a year ago.

While the numbers might have slowed only recently, this still puts Disney in an incredible position going forward. The company previously forecast between 60 million and 90 million Disney+ subscribers by the end of its 2024 fiscal year.

In terms of competition, streaming platforms have more or less become an essential service as more people are craving entertainment. Streaming platforms are seeing a surge in viewership during the COVID-19 pandemic. Last month, Netflix Inc. (NASDAQ: NFLX) reported that 15.77 million global paid net subscriber additions for its first quarter. However, Netflix warned that there is an expected decline in viewership and slowdown once these shelter-in-place orders begin to lift.

The Homefront

May 20 will be a big day for Disney in the United States. As Florida is relaxing its shutdown orders, the Walt Disney World Resort noted that it would begin a “phased reopening.” What remains to be seen is how U.S. consumers will respond to the “phased reopening” of stores and restaurants in the Disney Springs waterfront development.

Note that the rest of the Walt Disney World will remain closed, including the theme parks and resort hotels. As Disney Springs begins its reopening in the coming weeks, there will be increased safety measures like those seen in China. Some of these safety measures include increased cleaning procedures, the use of appropriate face coverings by both cast members and guests, limited-contact guest services and additional safety training for cast members.

Matt Simon, vice president of Disney Springs, detailed in a blog post about the reopening of the outdoor shopping, dining and entertainment complex:

During the initial opening phase, Disney Springs will have limitations on capacity, parking and operating hours. Given this unprecedented situation, we appreciate everyone’s patience and understanding as we navigate through this process as responsibly as we can. Additional protocols and procedures may be announced closer to the opening date. Please check as we get closer to May 20 for the most current information on operating hours, locations and safety procedures.

There’s more to be seen if the Shanghai reopening is successful, and if this can be applied to other parks around the world.

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