Disney’s fast start with Disney+, which the company said has racked up 28.6 million subscribers in its first three months, won raves from most Wall Street analysts but hasn’t budged the company’s stagnating stock price.
The media giant reported generally strong results for its fiscal first quarter on Tuesday, though soft spots included the company’s Media Networks unit, where pay-TV subscriber levels declined more than 4%.
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Traditional-media headwinds may help explain the sideways movement of the company’s stock despite the blazing start in streaming. Shares were at $141.50 in mid-morning trading on Wednesday, an otherwise up day for the broader market, a decline of more than 2%. In 2020 to date, the stock has slipped 3%.
Despite some lingering issues, analysts’ focus on the earnings conference call with management and in the hours afterward was on Disney’s remarkable execution of its streaming strategy.
“Regardless of whether you own Disney’s stock, the company and their management team must be given credit for pulling off one of the greatest product launches of all time,” wrote Michael Nathanson of MoffettNathanson in a note to clients. The success of Disney+ “speaks to the unrivaled quality of their content, the strength of their brands and the magic of Disney’s marketing machine,” he added.
Nathanson, who has a “buy” rating on Disney stock and a 12-month price target of $165, added a tribute to Disney’s top dog. “Having both worked in the media industry and covered the sector for eons, 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,” he wrote. “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. It is a shame that other industry leaders didn’t follow suit when they had their chances.”
John Hodulik of UBS also has a “buy” rating on the stock and a price target of $162. In a note to clients, he said he now expects Disney to end fiscal 2020 with about 45 million Disney+ subscribers. The service, which is operating in the U.S., Canada, Australia and New Zealand, will launch in several major global territories over the coming weeks. The company has not adjusted its initial guidance of reaching 60 million to 90 million subscribers in the first five years.
“Even against already elevated expectations following initial success at launch, Disney reported strong paid subscribers for Disney Plus that highlight robust consumer demand for Disney’s unique content,” Ben Swinburne of Morgan Stanley enthused. The analyst has a price target of $170 and an “overweight” (buy) rating on the shares.
Doug Creutz of Cowen & Co. raised his price target to $159 from $154, maintaining an “outperform” rating on the shares. While his note to clients was upbeat, Creutz did flag a few areas of concern, including Hulu, of which Disney took operational control last spring. “It appears Hulu subs were likely flat to slightly down excluding gains from the bundle,” the analyst wrote. “We believe the recent restructuring at Hulu is an admission by management that the DTC platform needs work.” One bright spot ahead for Hulu is its long-awaited international rollout, which Disney expects to start in 2021.
Not everyone was pumping their fist at the results, however. Todd Juenger of Bernstein Research upped his price target to $141 from $138 but still has a “market perform” (neutral) rating on the stock.
“We believed Disney stock was more-or-less fairly priced coming in, and we continue to believe that coming out,” he wrote in a note to clients, headlined “Running to Stand Still.” He pointed to improvements at Parks despite coronavirus concerns but raised an eyebrow at ominous subscriber and advertising trends at Media Networks.
Consumption of Disney+ programming of about an hour a day on average matched Juenger’s expectations — and that’s “half of Netflix,” he noted.
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