The Walt Disney Co., led by chairman and CEO Bob Iger, on Wednesday earned Wall Street praise for the early momentum of its Disney+ streaming service as reported in its latest quarterly earnings after the Tuesday market close.
Michael Morris, analyst at Guggenheim Securities, in a report titled “Disney+ Leaps Over High Bar, Bolstering Confidence in Strategic Pivot,” raised his Disney stock price target by $9 to $160.
“Much anticipated Disney+ subscriber sign-ups exceeded our 25 million year-end estimate at 26.5 million, growing to 28.6 million by February,” he wrote. “Direct-to-consumer performance was the standout in terms of both subscriber additions and financial performance.”
He added: “Management did not temper expectations for continued strength given two waves of European market expansion (March and summer), announcement of a March 29 launch in India (two price points, packaged with Hotstar, timed to benefit from the start of the Indian Premiere League Cricket season) and confidence in another original content infusion in the U.S. later in 2020” to add to such initial originals as The Mandalorian.
Bernstein analyst Todd Juenger raised his price target by $3 to $141 on Wednesday and maintained his “market perform” rating on Disney shares, saying he has increased his value for the conglomerate’s direct-to-consumer and international unit from $38 billion to $46 billion.
“We believed Disney+ subs less than 25 million would drive stock down, greater than 30 million would drive stock up,” the analyst wrote in a report. “26.5 million is squarely in the ‘fairly priced’ comfort zone. The 28.6 million update as of yesterday was probably more important: while the sub adds pace has significantly slowed, churn has not driven a decline (yet).” He estimated Disney+ could end the company’s fiscal year with 40 million subscribers.
Meanwhile, MoffettNathanson analyst Michael Nathanson maintained his “buy” rating on Disney’s stock and his $165 target price. “The incredible success of Disney+ with 28.6 million paid subscribers (mostly domestic) in less than 90 days — almost half of where Netflix is today — speaks to the unrivaled quality of their content, the strength of their brands and the magic of Disney’s marketing machine,” he wrote in a report. “We have witnessed Disney’s CEO Bob Iger achieve something that few others have ever tried and he deserves much of the credit for it. Rather than play the hackneyed short-term game of managing for quarterly earnings, he has courageously agreed to spend and do what was needed to re-position Disney for long-term success in the future.”
But Nathanson also suggested that the early momentum could mean higher costs, saying “this growth does not come cheap, as Disney’s direct-to-consumer services lost $1.1 billion in the quarter.”
Concluded the analyst: “While the company well-telegraphed the high U.S. cost of this transition in their investor day last April, we wonder if the better-than-expected start at Disney+, the structural changes at Hulu and the acceleration in international launches will cause the company to re-visit their earlier loss estimates. Given that Hulu will move internationally in FY 2021, a more full and accurate picture of the scale of Disney’s investment spending will be disclosed over the back-end of this current fiscal year.”
Disney’s stock rose in early Wednesday trading, but was down 1.9 percent as of 9:45 a.m. ET at $141.99.