Disney Stock Hits All-Time High as Analysts Boost Price Targets, Laud Streaming Content

The Mandalorian
Courtesy of Disney+

'The Mandalorian'

But one Wall Street observer notes: "Disney promises more of everything for direct-to-consumer, except profits," while another one writes that the size and quality of content plans was "mind-blowing and frightening to any sub-scale company."

Wall Street analysts on Friday raised their stock price targets for the Walt Disney Co., lauding the streaming content plans and increased subscriber goals unveiled at a Thursday investor day, and the stock hit an all-time high.

However, Cowen analyst Doug Creutz, in the headline of his report, also noted that "Disney promises more of everything for direct-to-consumer, except profits."

Disney shares jumped in early Friday trading and reached an all-time high of $171. As of 9:35 a.m. ET, they were up 7.4 percent at $166.15, pushing the company's market capitalization above $300 billion.

Guggenheim Securities analyst Michael Morris, who has a "buy" rating on the stock, raised his price target by $20 to $185 in a report entitled: "Start Them Up! Disney Takes Content Slate Plans, Streaming Ambitions to Lofty Levels."

"Disney Streaming Investor Day Vol. 2 was anything but a disappointing sequel as an ambitious programming budget ($14-16 billion annual on direct-to-consumer by 2024) and robust content slate were paired with disciplined profitability (direct-to-consumer breakeven targets unchanged or earlier than prior guide) and a shockingly large increase to subscriber targets (300-350 million globally by 2024)."

And he concluded: "While not every question was answered, we believe investor confidence in Disney’s leading position for the next generation of content creation and delivery was meaningfully bolstered and should be reflected in market valuation."

MoffettNathanson's Michael Nathanson maintained his "neutral" rating on Disney shares, but boosted his price target by $21 to $160 in a report he called "If It Was Easy, Everyone Would Do It."

He highlighted: "The sheer size and quality of the content tsunami headed to Disney+ was mind-blowing and frightening to any sub-scale company thinking about competing in the scripted entertainment space."

Otherwise, "the most memorable takeaway was the revised guidance of 230-260 million Disney+ subscribers by the end of fiscal year 2024, with 30-40 percent of the subscriber base coming from the much lower revenue per user Disney+ Hotstar." And the analyst noted: "This is obviously a much higher number than our prior fiscal year 2024 Disney+ estimate of 155 million, which did not include Star as a bundled service but did include Disney+ Hotstar."

Discussing the decision to add a Star content tile to Disney+ in most developed markets, Nathanson said that this "is a much safer and more rational approach than trying to launch a new individual service a la carte. Under this model, Disney will be able to widen out the content offering of Disney+, take a price increase and offer a content slate that will rival Netflix in consumer consideration at a lower price."

Bernstein analyst Todd Juenger, who has a "market-perform" rating on Disney, in an investor note also lauded the higher subscriber goals, but said he couldn't immediately provide an update on his $116 price target. "Disney's headline-grabbing guidance raise to 230-260 million Disney+ ... subs will certainly set the market to a positive mood," he argued. "Taking out the roughly 85 million Hotstar subs puts 'core' Disney+ subs at 160 million mid-point, versus buy-side bulls who, we estimate, had the bar set at 150 million. So that exceeds the bar, for sure, but not as wildly as the headline number sounds."

Creutz, who has a "market perform" and $115 target on Disney's stock, but focused some time addressing the fact that Disney didn't move up its forecast that Disney+ will reach profitability in fiscal year 2024.

"The significantly raised subscriber targets certainly won't hurt the Disney direct-to-consumer story, nor will the enormously impressive array of new content that Disney unveiled at the analyst day," he wrote. "However, when the company with by far the most impressive array of content on the planet tells you that at well over 200 million global subscribers, they will just be starting to achieve profitability, (1) you should believe them, and (2) you probably ought to wonder if the economic returns on direct-to-consumer video content aggregation can ever justify the rich valuations currently being granted by the market."

And Creutz noted: "The higher expectations go for Disney+ and other direct-to-consumer services five years out, the more linear profit contributions are likely to be in jeopardy."

But Macquarie analyst Tim Nollen noted how all of Disney's combined streaming services could overtake global giant Netflix by 2024. "Total direct-to-consumer subs are now expected to hit 300-350 million with total content expense of $14-$16 billion in fiscal year '24," he wrote. "This compares with our estimate for Netflix of 295 million global subs and $15 billion of content amortization in its 2024."