![Disney CEO Bob Iger](https://www.hollywoodreporter.com/wp-content/uploads/2023/08/GettyImages-1541067280.jpg?w=1024)
Disney’s latest earnings call and Wednesday’s post-market conference call saw a variety of progress under CEO Bob Iger, including efforts to cut costs and monetize streaming. He also presented new initiatives that refer to Netflix’s strategy, such as challenges such as the linear TV network business, expansion of Disney+ advertising space overseas, and crackdown on streaming account sharing.
With Wall Street having so much to digest overnight, it’s no wonder Disney shares were little changed in early Thursday trading, rising 1.1% to $88.44. Initial reactions indicated that analysts remained divided between bulls and cautious until Disney answers open questions or makes further progress.
While some Wall Street pundits lowered their price targets in the wake of the earnings report, others emphasized their confidence that the outlook will improve.
bank of america Analyst Jessica Leaf Ehrlich Still a major Disney bull, echoing her ‘buy’ rating, $135 In Thursday’s report titled “Strategic Transformation Underway,” he referred to stock targets, in which he identified “new areas of optimism.” That includes management’s expectation that the company will meet its targeted cost savings of more than $5.5 billion and that net Disney+ subscriber growth will accelerate in the fourth quarter of the current fiscal year.
“While some strategic issues remain (linear, the future of film, etc.), we remain confident in Bob Iger’s ability to successfully navigate the company through this transition period,” said Lief Ehrlich. concluded. “Disney has historically traded at a premium of over 20 percent to the S&P 500 Index (based on price/earnings) compared to currently trading at a modest discount (based on earnings projections for the 2024 calendar year). Given the latest guidance and cost-cutting efforts, we believe the consensus forecast is likely to be skewed upwards. Expansion could return to past premium levels.”
Other Wall Street pundits focused more on the short-term challenges for the Hollywood powerhouse.
Moffett Nathanson Analyst Michael Nathanson Disney maintained its “outperform” valuation, but lowered its price target by $5. $115 “It reflects our low estimates,” he said in a report titled “As promised, Bob.” emphasized.
Among the revised forecasts, the expert cut adjusted earnings per share guidance for fiscal 2024 by 15 cents to $4.65 and for fiscal 2025 by 30 cents to $5.80 per share.
Nathanson outlined the company’s current challenges, explaining: “The structural headwinds of Disney’s linear business and aggressive shift to streaming, combined with post-pandemic headwinds, have collapsed Disney’s profits in its media and entertainment distribution business (DMED). The acquisition of Fox. and Disney+, DMED generated EBITDA of $9.0 billion in 2018. DMED’s profitability is now estimated at $2.4 billion in 2023. At the same time, Disney’s Parks & Experiences business ( DPEP) is generating a much higher profit in fiscal 2023 than it did in fiscal 2019.” Analysts expect earnings to rise to $12.3 billion this year from $9.6 billion in fiscal 2019.
Nathanson also highlighted the challenges analysts are facing in evaluating Disney’s legacy film and TV studios these days. “Unfortunately, due to Disney’s disclosures and new business structure, it is not possible to benchmark this asset,” he said. “In 2018, the year before Disney acquired Fox, Disney’s Films and Entertainment business posted revenues of $12.3 billion and EBITDA of $2.7 billion. Given the collapse of both markets, what is the profitability like today?”
Moffett-Nathanson also touched on potential asset sales and spin-offs that Iger said the team was considering. “Given that Disney is still exploring all options for its future asset mix, we believe that Disney’s assets will be substantially more valuable than the company’s current value under any scenario. We think there are clear allegations,” Nathanson said. concluded. “Perhaps the easiest way to fill that gap is to create a new company (or ‘newco’) that combines Disney’s Parks, Experiences and Products divisions with Disney+ and the studio IP that drives these flywheels. Sho. The asset is likely to trade at a premium valuation given its high moat, iconic assets and strong earnings growth. ”
The rest were to be placed in another “oldco” that would house Disney’s linear network, ESPN+, Hulu SVOD, Hulu Live TV and Disney+ Hotstar. “given peer [stock] “Fox and Warner Bros. Discovery have high multiples, and we have no illusion that the market will be lenient in valuing these businesses,” Nathanson argued. “However, we believe that nothing heroic is needed for these moves to scale, given the current low implicit value of Disney’s non-parks businesses.”
wells fargo Analyst Stephen Cahall We maintained our Overweight rating on Disney stock, but lowered our price target by $1. $146 In a report entitled “Adaptation”.
“It’s not an easy road, but we feel a new Disney defined by adaptation: cost cutting, price increases, content revamping, portfolio shaping. Everything is on the table and this could be a turning point.” there is,” he pointed out.
Among the changes planned by Disney, he highlighted: “Further significant price increases without advertising (domestic version Disney+ $13.99/month, Hulu $17.99/month, Duo $19.99/month), new international Disney+ ad space expected to exceed $5.5” billions of yen future crackdowns on password sharing, sports betting partnerships with Penn for maximum payouts, seeking ESPN DTC partnerships, and willingness to trade with non-core/non-ESPN linearnets (excluding content houses). ”
In terms of streaming, including bundles, Disney now has 77.5 million unique subscribers in the US and Canada, which is “on par with Netflix,” Cahall wrote. Analysts took the comparison to Netflix even further. “We’re already bullish on DTC long-term, given Disney’s size and profit potential from cost savings and price increases,” he explained. “We believe Disney+’s new pricing is more in line with Netflix’s average revenue per user (ARPU) to content ratio, which is about $1 per billion dollars worth of content per month,” Cahall said. so concludes. “We believe the DTC revenue stream is the one that unlocks the greatest potential value.”
Wells Fargo experts also summarized key investor questions and discussions, and provided some perspective ahead of an investor event scheduled for September. “There seems to be a lot going on right now, and we expect updates to focus on: 1) How to improve content, as Bob Iger mentioned at the earnings call, and still 2) Streaming outlook, including when cost improvements will propel DTC towards breakeven in FY24 3) Potential portfolio changes, including linear sales excluding ESPN/Content House 4) An important factor leading up to ESPN’s DTC transition.”
CFRA survey Analyst Kenneth Leon After the earnings release, he reiterated his Buy rating for Disney stock, but lowered his price target by $22. $105. “Disney has distinct assets that could be recognized through strategic restructuring and possibly spin-offs that we believe have significant value,” he explained. But he cut earnings forecasts for fiscal years 2023 and 2024, which sent the stock down.
in contrast, Guggenheim Analyst Michael Morris maintain his “buy” rating, $125 Thursday price target. “Q3 earnings were broadly in line with consensus expectations, with Park largely offsetting media weakness,” he said, summarizing key takeaways from the earnings update. “DTC’s cost discipline has significantly increased operating profit for this segment.”
Based on the earnings call and the conference call, Morris lowered his fiscal fourth quarter segment operating profit forecast to $2.8 billion from $3.3 billion and lowered his fiscal fourth quarter net Disney+ core subscriber add forecast to 3.5 million. 3 million (including 1 million domestic and 2 million domestic). 1 million international users. The analyst also raised its outlook for DTC for fiscal year 2024, saying it would “benefit from higher prices.”
But Morris remains bullish, saying, “Our target price of $125 is a sign of our confidence in the long-term strength and potential of the park’s growth and a newfound confidence in the profitable growth of our media and entertainment assets. It reflects our focus,” he concluded.
meanwhile, Macquarie Analyst Tim Nolen sticking to his “neutral” rating, $94 Regarding Disney’s price target, the report headlines, “So much has happened, but the numbers haven’t changed much,” summarizing the latest results.
“While the new news included Disney+ price hikes and the launch of new inventory, there was nothing concrete about ESPN’s or other assets’ big-picture plans,” the analyst stressed. , explained why they are keeping quiet for now. “We believe the long-term success of our streaming services, including ESPN, and the Studio and Park franchises. You can.”
TD Cowenof Doug Kreutz He was also less bullish on Disney, reiterating its “market performance” assessment. $94 While he has set a price target, he stressed that his forecasts and models are “under consideration” following the earnings update.
He called the latest results “mixed” and expressed concern that “content is going down while DTC prices are going up.” Kreutz writes: “Given Disney’s concurrent decision to cut back on original content, exacerbated by the impact of the Hollywood strike, I fear consumer response will be muted. Even if accepted, it is not yet clear whether DTC’s profitability improvement will be able to more than offset the linear profitability decline (perhaps more than $2 billion year-over-year in fiscal 2023).”
Beyond Wall Street Jamie Lumley,Analyst third bridge, also commented on Disney’s latest earnings report and conference call, which initially focused on ESPN. “The sports betting deal with Penn Entertainment represents another major shift for ESPN and Disney as a whole,” he stressed. “As cable TV viewership continues to decline, this could be an effort to drive growth and expand our revenue base as Disney explores strategic options for this property.”
He also noted that experts expect ESPN to steer entirely to streaming in 2024, saying, “But Disney will probably make other transformative changes before , they want to settle Hulu’s future first.”
Of course, Disney’s streaming prospects were also an important issue for Lumley. “The streaming business is well on its way to profitability, but it has a long way to go,” he wrote. “Our experts believe 2025 is a more realistic year than next year to achieve profitability, especially given factors such as the Hollywood double strike and relatively weak audience acceptance of Disney content. I’m assuming it’s a schedule.”