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How Big A Risk Is Zika For Disney?

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:

Zika has made headlines recently for a few reasons:

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: SNY) announced that it has put together a person team to develop a vaccine. Finally, GlaxoSmithKline NYSE: GSK) announced 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.

How big a health problem is Zika?

Zika has been in the news for several months now. The graphic above, produced by the World Health Organization, shows that the virus is now present in more than 60 countries. But public concern in the US has thus far been muted. Reaction to Zika has been markedly different from reaction to the Ebola scare in 2014, even though there were very few US Ebola cases, as opposed to several thousand Zika cases in Puerto Rico already. One reason for the difference was that Ebola is a particularly terrible disease whose effects were immediate and obvious. Another reason was because Ebola had the potential to become an outbreak which could have spread exponentially through the general population.

Still, Zika is a very serious health problem in its own right. The chance that babies whose mothers have Zika can be born with microcephaly is well documented. But there could be other, more common impacts on Zika-infected children who don't show obvious physical deformities at birth. For instance, risks include the chance that children can develop acute disseminated encephalomyelitis (ADEM). According to the New England Journal of Medicine, a preliminary report from Brazil indicated that fetal abnormalities detected by ultrasonography were present in 29% of women with Zika virus infection during pregnancy. According to reporting by the BBC, while "only" approximately 1% of pregnant women who contract the Zika virus while pregnant will have babies with microcephaly, up to 20% of their babies could have other neurological problems.