3 Reasons Why Disney Stock Could Avoid Becoming A Trade War Casualty
I don’t know what Disney (NYSE:DIS) CEO Robert Iger does day to day. However, I’m sure one of his actions over recent weeks involved a face-palming. That’s because DIS stock, which is in the middle of a critical pivot, now faces a possibly severe headwind.
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Making headlines throughout the world is the ongoing and escalating U.S.-China trade war. It’s taken a lot of companies like Disney by surprise. Just a month ago, the tea leaves suggested that a resolution was imminent. Both Washington and Beijing agreed to hash out their differences.
But a sharply worded Twitter (NYSE:TWTR) posting from President Trump — is there any other kind? — scuttled optimism. As usual, the former real-estate mogul doubled down on his about-face sentiment. Fearing losing face to its citizenry and the international community, China pushed back. The trade war is back on, and so, too, are concerns for the Disney stock price.
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For Iger, the situation must be doubly frustrating. He sat on Trump’s business council two years ago and was among the execs who advised the President against igniting an all-out trade war. Interestingly, DIS stock was incredibly choppy until relations appeared to smooth out.
Now, Iger is exactly where he begged the business gods not to place him in. Like a pivotal point in a Marvel action movie, just when DIS stock gained decisive momentum off its Disney+ streaming platform, shares have slammed into a wall.
With competition expanding in the broader entertainment arena, China presented a glowing opportunity. A country four times the size of the U.S. population, the Asian juggernaut was a license to print money.
But before giving up on Disney stock, here are three things to consider:
DIS Stock Levers “Status Symbol” Brands
On the surface, a trade war would spark a nationalistic fervor in China against the “imperialist” Americans. Building off the uproar, the Chinese government will urge (or force) its citizens to boycott all U.S.-made goods and services. Naturally, this would hurt the Disney stock price.
In reality, I think the reaction toward a company like DIS will be much more nuanced. I say this because social status in China remains an important factor in everyday life.
For instance, when we go grab a quick bite to eat at Pizza Hut or McDonald’s (NYSE:MCD), we don’t think twice about it. But in China, the situation is much different. If you want a slice at Pizza Hut in Xiamen — owned by Yum China Holdings (NYSE:YUMC) — you better get a reservation. I’m not kidding!
Like the historical impact of the first McDonald’s opening in the Soviet Union, the Chinese still have fond memories of western integration. In my view, this helps Disney stock. The underlying brand represents America in ways other brands can’t quite capture.
As far as status goes, it’s an incredible luxury for an average Chinese family to visit Shanghai Disneyland. So, I’m not overly worried about the trade-war impact here.
Disney Stock and That Content Empire
Another area that deteriorating U.S.-China relations can’t touch is Disney’s content. Quite simply, the Magic Kingdom has plenty of it, and most of these licenses are extremely lucrative.
If you follow my writing on InvestorPlace, you’ll know that I’m generally bullish on streaming giant Netflix (NASDAQ:NFLX). Even with DIS getting into the mix, I’m still optimistic on NFLX because of its powerful original content.
Admittedly, though, DIS is taking out Netflix’s initial advantage of going first to market with the streaming platform. Moving forward, the two will compete head-to-head mostly on content, which is Disney’s strength.
Further favoring the Disney stock price is the changing nature of the entertainment consumer. With the mainstreaming of geek culture, most of today’s successful movies are science-fiction fare or based on comic books.
Of course, this is a huge boost for DIS stock because the underlying firm owns the Star Wars franchise. That is a real license to print money, trade war be damned! And when the hotly anticipated Star Wars: The Rise of Skywalker hits theaters later this year, I expect record-breaking sales. That includes both domestic and Chinese box offices.
Disney is America’s Corporate Ambassador
If tensions get worse — and that’s more than likely — I can see the Chinese boycotting expensive American goods. I don’t think it’s any coincidence that General Motors (NYSE:GM) and Ford Motor (NYSE:F) suffered sharp declines recently.
American car companies are on life support. They’re only hanging on because of Chinese demand. Surely, the communist government knows this, and they’ll go after GM and Ford. By stabbing Detroit in the jugular, China can hand the U.S. a permanently ignominious defeat.
But attacking Disney? I don’t see it, primarily because this is the most inoffensive brand ever. For one thing, its content, products, and venues appeal to the widest audience possible. Second, Disney is a very diverse brand. Specifically, they’re Asian-friendly, which is somewhat important when you’re trying to court Chinese viewers.
Lastly, we go back to Bob Iger and his short tenure on the President’s business council. After hitting the wall that is Trump’s ear canal, which helps funnel verbal cues to the President’s brain, Iger quit. But in doing so, he may have endeared himself to the Chinese. As luck would have it, this may turn out to be the best move ever.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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