Disney’s Lofty Streaming Subscriber Goal Divides Wall Street –

The increase in Walt Disney Co. It may come as a surprise, but the Wall Street debate is raging on the big question. Can the Hollywood giant hit its own forecast of 230-260 million subscribers by 2024, when Disney+ is still on hiatus?

The company’s latest results included an expected upgrade to Disney+ following the recent drop in Netflix subscribers, leading some observers to point to a sign for the streaming pioneer but also concerned about trends across a broad industry, with several stocks falling. .

In early Thursday trading, Disney shares tumbled 4.7 percent to $100.24 after several Wall Street watchers slashed price targets amid broader concerns and pressure on stocks. of the media and entertainment sector. Meanwhile, a group of analysts at Guggenheim Securities gave Disney shares a “neutral” rating with a “low” outlook, lowering the conglomerate’s 12-month price target from $110 to $150.

Daniel Salmon, an analyst at BMO Capital Markets, compared the gains on Disney’s account to post-management comments and the development phase where Disney’s streaming operations are on par with Netflix. “There was a little more emphasis on direct-to-consumer profitability, but Disney+ is still launching new countries and is less mature than Netflix, so we still see the growth mode largely intact,” he wrote in the report. “Disney will buy top tier investors when the market stabilizes, but we will maintain ‘market efficiency’ as we seek a clearer vision of how Disney/ESPN and live sports will shift to broadcast.”

The BMO Capital Markets insider cut his price target from $5 to $135, keeping the conglomerate’s streaming business rating at $80 and the “core dropped from $55 to $60”, reflecting a “Slightly higher rating”. . .” “Caused by a reduced number of peers.” How does that compare to Netflix? “The value of our direct customers is based on 10-year discounted cash flow, which is 5.3 times fiscal 2023 revenue and compares to 5.5 times the standard value of our Netflix target,” Salmon said. “The discount reflects Netflix’s proven free cash flow and the combination of Disney’s Hulu and ESPN+, which are in early stages and/or on a smaller scale.

Cowen’s Doug Creutz summed up one feature of the latest results: “We don’t think this impression is going to change the minds of either side,” whether Disney bulls or bears.

“Direct customer growth is better than Netflix, at least,” Kreitz said. Disney+ ended fiscal second quarter with 137.7 million paying subscribers (+7.9 million more than a quarter), slightly above our estimate of 7.0 million. The former Hotstar, with its 3.7 million quarterly additions, slightly exceeded our expectations for a quarterly addition of 4.0 million. “Hulu added 400,000,000 and also missed our 1.0 million მლ estimate, while ESPN+ added 1.0 million მლ… missed our estimate of 1.5 million მლ.” But the expert noted that management indicated that its downtrends in Disney+’s fiscal first half exceeded its expectations.

Creutz’s conclusion: “We think direct customer growth was better than feared following in the footsteps of the Netflix account, but probably not strong enough to convince skeptics (ourselves included) that the company is moving forward.” comfortably below fiscal 2024. The administration’s repeated profitability guidelines.

Wells Fargo analyst Stephen Kehal, in a report titled “Take the Risk,” also argued that Disney remains an emerging story in streaming, but expressed confidence that it could offer growth predictions.

“We did not expect the final fiscal second quarter and, unsurprisingly, some debate was resolved,” Kehal wrote. “Disney is targeting top Disney+ subscribers in fiscal 2024 through heavy spending on content and comprehensive non-pure deck/cow fill strategies. Against the backdrop of Netflix’s macro obstacles and fears, it’s hardly risk-free. “But we think it’s as clean as a bull/bear (case) as it comes.”

The analyst maintained his “overweight” rating on Disney stock, noting, “This is still a stock we want to keep for sure.” But he lowered the stock price target from $182 to $153 during the “multiple market squeeze”, explaining: “Of course we are in a very different market now with the price squeeze: 2.) Businesses vs. consumers due to recession; And 3.) market trackers due to higher fees. Disney is all three, so our previous $182 price tag is unrealistic.

Kehal sees the main catalyst for the stock in how much “mainnet addition” the Hollywood giant can achieve in the second half of the current fiscal year.

“Do you think they can do this?” Kehl summed up the main question for investors right now. “We know in November. We still see Disney as the second half of its fiscal 2022 story as a content ramp to drive subscriber growth. Net adds that it should start in the second half, which could be close to meeting fiscal 2024 targets.

Here, Cahall focuses on Disney+ streaming subscribers, with the exception of the hot star in India, “because we don’t think investors are already interested in subscribing to the hot stars.” Disney+ ended its recently reported quarter with 88 million “main” subscribers. In 2024, “The former government fashion star’s midfield is 159 million subscribers, and the minimum is 138 million, so call it 150 million as Disney+’s main support ghost,” he concluded. Kohl. “It takes 10 quarters to add 62 million top subscribers = about 6 million subscribers per quarter and about 24 million per year.”

The third quarter of 2022 is “crucial because it aims to demonstrate the speed of content delivery,” concluded Kohl. “By doing so, Disney is running a major campaign that makes or breaks the guidelines.”

The Wells Fargo specialist is thriving. “Management uses everything under the sun: spend $32 billion (and growing) on ​​content, AVOD product from the 2022 final calendar in the US, move to linear and Disney+, more general entertainment/local content. And license restrictions,” Cahol said. “When a Disney company focuses its collective resources on a single objective, we believe investors are neglecting compliance risk.

Paolo Pescatore, an analyst at PP Foresight, praised Disney’s latest quarterly performance, but pointed to rising content costs and raised questions about its long-term prospects. “It’s clear that all the providers are focusing too much on net adds,” said Pescator, who has responded to recent calls from Wall Street to boost streaming profitability. “Unfortunately, given the nature of the broadcast, there will be a high level of delays that will affect all providers. This, in turn, will affect income and the bottom line. ”

PP Forecast Analyst’s Conclusion: “While Disney appears to be winning the subscription battle right now, we shouldn’t forget that it’s too late for the streaming party. Its vast portfolio of programming, including sports and live entertainment, clearly resonates with families, (but) it will see subsidy losses at some point. I have said many times that the market is permeated by many services that cost very little money. ”