Walt Disney shares got hit with a downgrade on Friday, with Wolfe Research analyst Peter Supino seeing “cognitive dissonance” taking the spotlight from the Hollywood conglomerate’s traditionally touted Disney magic.
“The theme parks growth, cost cuts and direct-to-consumer (DTC) average revenue per user growth we’ve forecast are in consensus (earnings estimates), while the DTC subscriber and linear TV outlooks keep deteriorating,” he argued in a Friday report. “DTC plan for more subs, higher prices and lower cost seems like cognitive dissonance.”
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Supino cut his fiscal year 2024 operating income projection by 5 percent and changed his stock price target from $133 to N/A, or not applicable. Disney CEO Bob Iger and his team have said that they have started a broader refocusing of the entertainment giant, but more work was needed.
“With Disney+ subscriber forecasts looking risky, the linear TV outlook deteriorating, $2.5 billion of hard cost reductions now in consensus, and content amortization set to catch up to cash spend in the coming years, we downgrade Disney to ‘peer perform’,” he explained. “In fiscal year 2024, we expect less advertising and affiliate revenue (-$500 million) and less DTC revenue (-$1.1 billion with around 80 percent related to lower Disney+ subs). We see scope for additional cost cuts (integration of Hulu into Disney+, international DTC shutdowns, ESPN international sports rights and selling, general and administrative cuts), but high incremental margin DTC revenue growth is essential to Disney’s (stock) multiple, and we are increasingly skeptical.”
That said, Supino highlighted that after an 8.7 percent drop in Disney shares on Thursday, when several analysts cut their stock price targets, following its late Wednesday quarterly earnings report, he expects “valuation support” thanks to “strong parks and cost reduction trajectories.” In line with that, Disney’s stock was slightly higher in Friday pre-market trading.
