• by Wayne Friedman , April 20, 2020

Walt Disney’s business expectations -- especially from its theme parks and sports TV programming -- are now expected to limp along until the end of the year, with profitability sharply declining, according to a report from UBS.

The stock market research company estimates net earnings will sink to $2.9 billion for its fiscal-year 2020 results -- down from $9.6 billion a year ago -- due to the effects of COVID-19.

UBS downgraded Disney’s stock to “neutral” from “buy.” Monday morning trading saw the stock down 3.1% to $103.18.

The lack of sports TV programming will continue to steepen Disney’s decline --- as well as all major TV platforms.

For Disney, UBS estimates 28% of all its programming comes from sports TV content, based on Nielsen live program-plus-seven days of time-shifted viewing hours.

As a result, UBS says, traditional pay TV video subscribers for major TV platforms are expected to be drop 6.4% in 2020 and 6.6% in 2021, this versus previous decline estimates of  5.4% and 6.4%.

This will affect not just advertising revenues, but affiliate fees. John Hodulik, media analyst for UBS, writes that the suspension of NBA season has already been a blow to the company for its networks ESPN and ABC. And there could be more to come -- possibly a delay in the start of the NFL and other football content. 

“College football represents almost twice the viewership for the company and we doubt it can continue to collect its high fees from distributors if the college football season is cancelled or delayed until spring,” Hodulik says.

The positive for Disney is that its national TV advertising represents a much smaller piece of overall revenue exposure compared to other major media companies -- which came in at 12% in its 2019 financial results. This compares to anywhere from 29% to 38% for the likes of Fox Corp, ViacomCBS, Discovery and AMC Networks.

“We remain constructive on Disney's ability to create differentiated, high-value content and to monetize that content through traditional and new channels," says Hodulik.
"We remain particularly constructive on the long term outlook for Disney+ and other DTC efforts." 

There is a bigger concern at Disney’s theme parks -- which represent 30% of its overall revenue. Although many analysts hope to see Disney’s theme parks reopen this summer, UBS’s conservative projection is that parks will come back online January 1, 2021.  

UBS estimates theme parks cash flow -- earnings before interest, taxes, depreciation and amortization (EBITA) -- to sink to $500 million this year, dropping to $200 million next year. For all of 2020, U.S. domestic park attendance is projected to drop to 40.6 million -- down from 83.0 million a year ago. For 2021, lowering to 33.8 million before recovering to 83 million in 2022.