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Cineplex (TSX: GCX) & Disney: Future of 2 Entertainment Stocks



Canada Edition
Stocks of media and entertainment companies like Walt Disney (NYSE: DIS) and Cineplex (TSX: CGX) saw a sharp dip in value this year after lockdown restrictions forced cinema theatres and productions firms to shut down in March. Disney shut down its theme parks and resorts amid the pandemic, although it managed to score some gains with the help of its new online streaming service — Disney+. Cineplex, on the other hand, suffered more than just one blow. One on hand, its movie theatre chains incurred massive losses due to the lockdown. On the other hand, a $2.1 billion takeover bid by UK theatrical giant Cineworld collapsed in June. 
 
Share price of Walt Disney and Cineplex have seen a recent climb as both the entertainment companies  tweaked their business models amid the pandemic. While Disney decided to release its latest big-budget movie Mulan on its streaming platform, for a premium fee of C$ 34.99, Cineplex started reopening its movie theatre doors to public in August-end.  
 
The Walt Disney Company (NYSE:DIS) 
Current Stock Price: C$ 131.25 
 
Walt Disney was forced to shut down its theme parks, resorts and other outdoor experience hubs such as cruise ships  due to the coronavirus pandemic. This struck a massive blow to its business, which reflected in its third fiscal quarter report. Revenues from its international parks and experiences business plummeted by 85 per cent in Q3 2020 ending on June 27. Disney estimated that the operating income generated from this segment of its business had suffered an impact of nearly US$ 3.5 billion in Q3. Walt Disney Studio Entertainment also saw its revenues drop by 55 per cent in this quarter, triggered by decrease in theatrical distributions. However, as the demand for online content climbed amid the pandemic, Walt Disney’s streaming platform Disney+ saw a boost in numbers. The company’s direct-to-consumer (D2C) services exceeded 100 million paid subscriptions in the third quarter, registering a 2 per cent increase in revenue in the D2C segment. 
 
This C$ 237-billion market cap company saw its share value fall as low as C$ 85.76 in March when the market crashed  following the COVID-19 outbreak. In the last six months, the stock price rose by 23 per cent. Disney currently distributes a semi-annual dividend of C$ 0.88. The current dividend yields stands at 1.34 per cent. Its price-to-book ratio (P/B) is 2.76 and price-to-cash flow ratio (P/CF) is 31.10. 
 
With theaters being shut in most countries, Disney had decided to release Mulan on its streaming platform in places where the service is supported. For China, however, the movie was screened in theatres.  
 
The company’s scrips dipped in value in the second week of September after the live-action movie Mulan released in China on September 11 and was met with disappointment. The US$ 200 million-budget movie has managed to collect around US$ 23.2 million over the weekend in China, from where Mulan’s folklore belongs. 
 
Cineplex Inc (TSX: CGX) 
Current Stock Price: C$ 8.16 
 
Cineplex made headlines on Monday after a report by S&P Dow Jones Indices revealed that the movie theatre chain is going off the S&P/TSX Composite Index on September 21. This news comes after Cineplex, Canada’s largest media and entertainment company, began a phased reopening of its movie theatres in the last week of August.
Cineplex shares took a big hit when movie theatres were forced to shut down in March amid the lockdown. Its stock price nosedived from C$ 31 on March 11 to C$ 8.84 on March 19, and it hasn’t quite recovered since. In the last six months, Cineplex scrips have plunged by nearly 72 per cent. The company recorded a 95 per cent drop its revenue in the second quarter of 2020, down from C$ 438 million in Q2 2019 to C$ 22 million in Q2 2020. Its theatre attendance, which was a massive 17 million in Q2 2019, was a paltry 6,000 people in 2020’s second quarter. 
What added further damage to Cineplex’s stock performance was the failure of the C$ 2.15 billion takeover deal. UK-based cinema chain giant Cineworld Group Plc was due to acquire Cineplex earlier this year, but pulled the plug on the deal in June after accusing the latter of breaching contract terms. 
In the last one month, Cineplex stocks gained 3 per cent in value. This could be a result of its movie theatres finally opening up in Canada after a nearly six-month shutdown. Considering that mass public gathering remains prohibited in most places, Cineplex opening its doors for a theatre experience could turn investors in its direction. One of its first releases, Christopher Nolan’s Tenet saw a limited attendance due to the continuing COVID-related restrictions. It  managed to collect US$ 20 million in North American box office over Labour Day weekend. 
The future of cinema theatres remains clouded amid the social distancing norms and changed audience behavior. COVID’s seismic shockwaves on the entertainment genre will continue to shake up the industry, as reflected by big budget flicks postponing their theatrical release. The rise of online streaming channels like Netflix and Disney+ has accelerated in these pandemic times.  
 
 

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