How Big a Risk is Zika for Disney?

How Big a Risk is Zika for Disney?

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Summary

The Zika virus has begun to spread in Florida.

Disney earns well over 10% of its total revenue and operating profit in Florida.

Even in the event of a 30% revenue decline due to a Zika scare, the impact on Disney as a whole would be limited and short in duration.

Zika, a mosquito-borne virus which can cause serious neurological problems, is finally beginning to make headlines in the United States. Here is the headline from the Drudge Report on Monday, August 1:

Zika has made headlines recently for a few reasons:

  • Last week, Florida recorded the first cases of mosquito-transmitted Zika in the US.
  • The state reported an additional 10 cases August 1. All the cases were in Miami-Dade and Broward Counties, in south Florida. Here is an interesting graphic showing the overall spread of Zika cases in Florida.
  • As a result of the outbreak, the CDC has recommended that pregnant women avoid travel to the area with the greatest density of mosquito-borne cases.
  • Also on August 1, the British government issued a travel warning for pregnant women visiting Florida, but specifically the Miami-Dade area.

Zika is a nasty virus. Avoiding it is a good idea. It’s also a good idea for investors to take the possibility of a larger Zika outbreak into account when buying stocks. Some companies could be affected positively, particularly pharmaceutical companies such as Inovio Pharmaceuticals (NASDAQ: INO) or Intrexon (NYSE: XON). NewLink Genetics (NASDAQ: NLNK) has teamed with Merck (NYSE: MRK). Sanofi (NYSE: SNYannounced that it has put together a person team to develop a vaccine. Finally, GlaxoSmithKline NYSE: GSKannounced in January that it was weighing development of a vaccine.

One company which clearly could be negatively affected by an outbreak is Disney (NYSE: DIS), because Disney has extensive resort operations, including Disney World, in Florida. I took a look at Disney’s recent financials, and have come up with a very rough estimate of the possible financial impact of Zika on DIS earnings. This estimate is of course separate from any other analysis of Disney, which is an absolutely wonderful company with a great record and outlook.

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