“Despite long-term concerns about cord cuts, linear advertising, movie theater attendance, and a possible new normal in consumer travel, Disney has accomplished what its peers haven’t: They’ve built a life raft big enough to grab the attention of the street, ”MoffetNathanson analyst Michael Nathanson wrote in a note Wednesday morning, while maintaining a neutral rating and raising his price target to $ 118 from $ 111 . “And that focus helps move past low free cash flow generation, an unusually different stretched balance sheet than Disney, and a relatively high valuation.”
attempting to capitalize on the only positive aspect of a pandemic-stricken wallet: streaming. After detailing a $ 5 billion quarterly loss that was turned into adjusted profit thanks to an accounting trick involving sports rights, Disney turned the conversation around by announcing it would allow consumers to watch its long-delayed movie “Mulan” for $ 30 on Disney + and will launch a new international streaming service under its Star brand.
Full Results: Disney Shakes Up Approach To Streaming After Losing Nearly $ 5 Billion To Pandemic
Analysts were quick to seize the positive news and use it to dispel their doubts about Disney’s other business.
“While the dynamics related to COVID are likely to have a big impact on many Disney businesses for a while, we are removing the 20% risk reduction we applied to our target price given what we consider like increased visibility, ”Credit Suisse analysts wrote during the Disney upgrade. to outperform Neutrality and increase their target price to $ 146 from $ 116.
“With new CEO Bob Chapek now pointing to an ‘innovative and bold’ new pivot to streaming, we expect Disney stocks to be even more aggressively positioned as a streaming growth story (where investors have limited investment vehicles), and a possible COVID trade-in game. “
Credit Suisse was one of at least three banks to upgrade Disney shares following the fiscal third quarter earnings report, while many raised their price targets, pushing the average price target higher. Disney shares $ 128.48 to $ 132.09 Wednesday morning, according to FactSet Tracking. Disney shares jumped more than 10% in the morning trading session, hitting a high of $ 130.30 after closing Tuesday at $ 117.29.
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Much of the consumer gossip about Disney’s earnings involved the cost of “Mulan,” the live-action remake of a Disney animated film that has been repeatedly delayed and will now be sold on pay-per-view. on Disney + for $ 30. Explaining the difficult task of pricing the film, Bernstein analyst Todd Juenger described it as “both incredibly high and quite a godsend to the consumer, depending on one’s perspective.” .
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“Certainly $ 30 for a family is a lot cheaper than it would cost to get that family to see this movie in a theater. On the other hand, the marginal cost of watching another movie on Disney + or Netflix is “zero”. Or framed differently, a consumer could receive nearly a semester of ad-supported Hulu SVOD, or Disney + at the annual discounted rate, for the same price as watching Mulan once, ”Juenger wrote while maintaining a rating of market performance and increasing its price. target at $ 116 from $ 105.
Although “Mulan’s” decision made big waves, analysts stressed that Disney was adamant the move was unique and will help secure the necessary revenue – Juenger pointed out that less than 15% of subs of Disney + would need to rent the film for Disney to recoup its costs. The biggest long-term shift from analysts’ perspective has been the move to a Star-branded international streaming service similar to Hulu, the North American streaming offering majority owned by Disney.
“The announcement lacked specifics, but we believe this is an important development as it could be a driving force to help Disney reach 200 million global streaming subs, potentially in 2022, after reaching 100 million in June, ”wrote Bernie McTernan, analyst at Rosenblatt Securities, while maintaining his purchase. rating and increasing his goal to $ 145 from $ 135. “It would be a big step to catch up with Netflix NFLX,
as we expect Netflix to cross 200 million subscribers during CY’20E. “
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Juenger described it as “a chance to replay the  playbook ”, referring to the launch of Disney + by Disney last year. “Announce a new [direct-to-consumer offering]. Host an investor day. Announce a 5-year sub-goal, ARPU, and profitability goal. Collect a ‘Netflix revenue multiple’ of this direction inscribed in the stock, ”he wrote, before adding a caveat on this approach.
“Before you get too carried away, wait, it’s not quite the same. Disney / Fox TV content is not distinguished by the consumer in the same way as the Disney + brands. There will be significant investments needed, of which we believe that the most important will be, once again, the renunciation of licenses. Not to mention the accelerated decline of international linear channels (depreciation of $ 5 billion in the quarter). “
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Not all analysts have been influenced by Disney’s streaming plans. Needham analyst Laura Martin reiterated her sustaining note and summed up the questionable numbers Disney released on Tuesday.
“Disney has not provided any forward-looking guidance. Costs related to COVID-19 during Disney’s FY3Q20 fiscal year were $ 3 billion, net of cost savings, the negative impact of Parks alone at $ 3.5 billion. … We are staying away until the structural economic impacts of COVID-19 on Disney are clearer, ”she wrote.
Most other analysts, however, were happy to point to new streaming initiatives as a potential savior for Disney.
“Disney management has delivered a targeted message of bold research for additional global video streaming opportunities by leveraging STAR and Disney + assets and a premium VOD window,” wrote Guggenheim analysts, who improved the action to buy from neutral and increased the price target to $ 140 from $ 123.
“While it is easy to maintain a cautious or skeptical approach to these initiatives, we anticipate that the possible further expansion of the streaming economy and the underlying investor confidence in intellectual property of Disney will make stock appreciation the most likely path from here. ”
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