Just as a silly game, I wanted to look at what Disney Q3 20 might look at to see what WDW PRO is talking about when he says they are cash strapped. I have no inside information so I am going to make numbers up just to see how bad things might be. When looking at financial reports, they key figure is cash. When a company begins running out of cash, they get desperate. GE got desperate in this way and sold Universal Parks (and all of NBC) to Comcast at a discount. Let's see where Disney might land this quarter.
Revenues:
Media Networks - Received $7,257M in Q2. This is ABC plus the Cable channels like ESPN. Let's say with lower advertising, they report down by ($1B) to $6,257M. Still making lots of money. I don't know if that is real, but let's pretend.
Parks, Experiences and Products - Received $5,543M in Q2. This is attendance at the parks, cruise lines, adventures, and character licensing. Here is where the virus hit hard. With all parks closed, let's say they are down $4B to $1,543M Revenue. Maybe all of it is gone, I don't know, but we will say $4B down.
Studio Entertainment - Received $2,539M in Q2. This is primarily the movies and Q2 included Frozen II and SW-ROS, both big movies. There is nothing in Q3 except ONWARD that I am aware of. Let's say they are down ($2B) to $539M.
Direct to Consumer - Received $4,123M in Q2. This is HULU, DISNEY+ and ESPN+. Let's say things went really good and DISNEY+ is doing great. Let's add $1B new revenue for Q3, making it $5,123M. I doubt they went backward.
So in our game, Q2 reported $18,009M in revenue. In Q3 we imagine they are reporting $12,009M, down $6B. Ouch.
Operating Income. Revenue minus the cost of generating the product. Negative Operating Income means tap the cash reserves.
Media Networks - After expenses they made $2,375M in Q2. I don't know if they reduced cost by Q3 so let's say they ate the entire $1B drop in revenue. Q3 Operating Income will be $1,375M. Well it still looks positive.
Parks, Experience and Products - After expenses they made $639M in Q2. Parks are expensive. They did take measures to control cost but things still had to happen. With a $4B loss in revenue (in our silly game) let's say they could only halt $1B in cost. So Q3 Operating Income will be down $3B to ($2,361M)
Studio Entertainment - After expenses they made $466M in Q2. Let's say of the $2B in lost revenue they ate $1B of it and stopped spending of $1B. So Q3 Studio and Entertainment Operating Income will be ($544M). Maybe.
Direct to Consumer - After expenses they reported a loss of ($812M) in Q2. The cost of rolling out Disney+ was a lot. Let's pretend with their extra $1B in revenue, they actually break even. I doubt it but it's just a game. No operating income or loss here.
So Disney may say Q3 Operating Income will be ($1,800M) loss. Disney business segments will lose almost $2B after expenses.
Effect on Cash
After the ($1.8B) loss in operating income, they have to pay interest on loans ($500M) and they were sinking $2.0B into Capital Expenditures for the park expansion and $300M into technology for Disney+. This was for the entire 6 month. So let's say they had to throw another $1B into capital expenditures overall in Q3. That means the hit to cash will be somewhere around ($3.3B) in Q3. Disney had $14B in cash at the end of Q2. So in our game, Disney will still have a bit over $10B in cash after Q3.
I don't know what the real numbers will look like but I don't see Disney considering selling assets or taking desperate moves to hold it together. Now if they run like this for nine more months then Katie bar the door, they are circling the drain. When we see Q3 real numbers, it will be fun for me to see what they look like. I am sure WDW PRO has a sense of it but Disney looks strong enough to hang on for awhile. What major item am I overlooking?
