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Disney ETFs at Risk on Weak Earnings Amid Coronavirus Crisis

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The Walt Disney Company (DIS - Free Report) reported disappointing second-quarter fiscal 2020 results on May 5. Earnings and revenues missed estimates, hurt by the coronavirus crisis. Consequently, shares of Disney have lost as much as 0.2% since the earnings release (see: all the Consumer Discretionary ETFs here).

Earnings in Focus

Adjusted earnings of 60 cents per share missed the Zacks Consensus Estimate by 27.7%. Moreover, the figure declined 63% from the year-ago quarter. Revenues of $18.01 billion were up 20.7% from the year-ago quarter. The figure missed the consensus mark by 0.14%. The pandemic has affected Disney’s income from continuing operations before income taxes by $1.4 billion. In fact, due to the pandemic, Disney had to shut down its domestic parks and hotels indefinitely and postpone cruise line in mid-March. The company also paused film and TV production and closed retail stores in the same period.

Disney+ Sees Impressive Subscription Growth

Disney+, which was launched on Nov 12, 2019, won 33.5 million paid subscribers within its fold. As of May 4, the company estimates Disney+ subscriber base to be 54.5 million. Moreover, Disney+ will be available in Japan during June, and then in the Nordics, Belgium, Luxembourg and Portugal in September, and lastly in Latin America toward the end of 2020.

Last November, Disney began offering a bundled subscription package of Disney+, ESPN+ and Hulu, which has a lower average retail price per service as against the average retail price of each service on a standalone basis. The average monthly revenue per paid subscriber for Disney+ was $5.63.

Coronavirus Impacts Guidance

Disney expects total capital expenditure for fiscal 2020 of $900 million, indicating a decline from its prior guidance or a fall of $400 million from the fiscal 2019-level.  Although there is no timeline for when Disney will reopen its parks domestically, it plans to open Shanghai Disneyland on May 11 under modified measures like restricting attendance using an advanced reservation and entry system and control guest density by implementing social distancing. Disney will also be following strict government-prescribed health and prevention procedures, including the use of masks, thermal screenings, and other contact tracing and early detection systems.

Commenting on the pandemic, Bob Chapek, Disney’s Chief Executive Officer said that, “While the COVID-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position.” 

ETFs in Focus

The weak results might have a huge impact on ETFs, especially those that have the largest allocation to this media and entertainment conglomerate.

iShares Evolved U.S. Media and Entertainment ETF (IEME - Free Report)

This actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 89 stocks in its basket, Disney occupies the fifth position in the basket with 5.2% share. The fund has accumulated $6.7 million in its asset base and charges 18 bps in annual fees. However, the fund has gained around 0.3% since the earnings release (read: Stay-at-Home Boosts Netflix Q1 Subscribers: ETFs to Buy).

iShares U.S. Consumer Services ETF (IYC - Free Report)

This ETF offers exposure to U.S. companies that distribute food, drugs, general retail items and media by tracking the Dow Jones U.S. Consumer Services Capped Index. It holds 157 stocks in its basket, with Disney taking the sixth spot at 4.1%. The fund has amassed $778 million in its asset base. It charges 42 bps in annual fees from investors. The fund has lost around 0.1% since the earnings release (read: Online Sales to Boost Amazon Q1 Earnings: ETFs to Buy).

Communication Services Select Sector SPDR (XLC - Free Report)

This ETF offers exposure to the communication services sector of the S&P 500 Index and has accumulated $7.74 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Disney occupying the tenth position at 4%. The product charges 13 bps in annual fees. The fund has lost around 0.3% since the earnings release (read: Google ETFs Gain Despite Mixed Earnings Amid Coronavirus Crisis).

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