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Disney’s Digital Pivot Could Be Its Saving Grace

Disney Digital

Disney stock has been languishing since March, and the re-opening of its theme parks last weekend resulted in its first boost since then, but it’s a tainted reopening at best.

At this point, if Disney stock is going to move in a positive direction, it’s likely to be on the back of its growing digital empire, not it’s physical offerings.

After being closed for four months, on Saturday, Walt Disney World in Orlando, Florida allowed visitors into Magic Kingdom and Animal Kingdom as part of its phased reopening.

With Florida now officially shattering all previous US records for single day new COVID-19 cases, perhaps Disney’s reopening was doomed to fail.

On Sunday, Florida reported 15,299 new cases from Saturday alone, with a test positivity rate now almost at 20%. More than 77,000 cases have been reported in the past seven days.

In the meantime, Disney stock has risen about 3 points in the past few days, on the reopening, to hover at around $118.40 as of mid-day Tuesday. 

It’s a far cry from its pre-COVID heyday of ~$148 in January.

The reopening is not likely to boost it much further with a pandemic raging and with Florida the worst COVID hotspot precisely because of vacationers, many of them eyeing Disney.

Two weeks ago, Florida governor Ron deSantis vowed that the state would not go back on its reopening, but now things seem a bit different. Miami-Dade County, for one, is making its own rules and last week moved to close down restaurants again, along with party venues and short-term accommodation rentals, among other things. 

It’s not a great atmosphere in which to host a grand reopening of one of the biggest crowd-gatherers in the United States. Indeed, the stock is still languishing amid a reopening because no one knows if it will have legs. Disney has already decided to close Disneyland Hong Kong after positive coronavirus cases. 

But here’s something else that we should be paying attention to with Disney: streaming. 

Earlier this week, Goldman Sachs initiated a buy rating for Disney, with a $137 price target. And it has nothing to do with Disneyland.

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Goldman seems to think that Disney’s new streaming service, Disney+, will be able to shelter the magical entertainment kingdom from the COVID-19 storm. 

Goldman is banking on a continued streaming boom as people continue to stay at home amid the pandemic, and the bank thinks that everyone has underestimated Disney+ so far--especially in light of its launch of DTC (direct-to-consumer) streaming.

"We believe Disney's best-in-class brand, global distribution (breadth), production assets (build), sizable content library (backlist) and strong financial profile (balance sheet) position the company to build scaled DTC video platforms in the highly competitive streaming environment," Goldman analyst Brett Feldman said in a note to clients.

And the numbers do look good: Goldman estimates Disney+ will have over 150 million customers by the end of 2025, and its analysts think they are being “conservative” with this figure. 

While Florida is fighting the reality tooth and nail, entertainment is going digital in full force, and Disney is well aware of this. If the pandemic continues for too much longer at its current pace, our next “magical kingdom” may be entirely virtual. 

By Michael Scott for Safehaven.com

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