Walt Disney Shares Pull Back After Q2 Earnings: What Do Analysts Think?

Walt Disney Co DIS shares traded lower by 3% on Friday after the company’s fiscal second-quarter subscriber numbers fell short of Wall Street’s expectations.

On Thursday afternoon, Disney reported second-quarter EPS of 79 cents on revenue of $15.61 billion. Both numbers exceeded consensus analyst estimates of 27 cents and $15.87 billion, respectively. Revenue was down 13% from a year ago.

Disney reported 103.6 million paid Disney+ streaming subscribers, well short of analyst expectations of 109 million. However, management reiterated its previous guidance of between 230 million and 260 million Disney+ subscribers by 2024.

Average monthly revenue per user dropped 29% to $3.99 in the quarter, which Disney attributed to the launch of Disney+ Hotstar.

Disney said it now had 159 million total direct-to-consumer subscribers, which includes ESPN+ and Hulu.

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Long-Term Subscriber Growth: CFRA analyst Tuna Amobi said the subscriber miss was likely driven by pull-forward effects of the pandemic in 2020, and Disney still appears on track to hit its longer-term subscriber goals.

“With a potential reset from the disruptive impact of the pandemic as the theme parks, theaters, and live sports events further reopen amid the vaccine rollout, we see a silver lining on the gradual path to more normalized operations through fiscal H2, accelerating in FY 22,” Amobi wrote in a note.

Needham analyst Laura Martin said Disney will be a winner in the streaming wars and is testing new movie release strategies this year.

“We believe DIS benefits from ‘reopening’ in 2021 as theme parks, cruise ships and cinemas are still closed or operating well below capacity,” Martin wrote.

Strong Reopening Play: Morgan Stanley analyst Benjamin Swinburne said all indications point to a strong reopening for Disney’s Parks segment.

“F1H21 saw a more rapid return to earnings and FCF than expected, a function of reopening tailwinds and cost controls,” Swinburne wrote.

Bank of America analyst Jessica Reif Ehrlich said Disney’s momentum appears to be building if investors can look past the second-quarter subscriber miss.

“The [Parks, Experiences and Consumer Products] segment in particular appears well positioned to see a meaningful acceleration as pent up demand is robust and further relaxation in CDC guidelines/state level social distancing requirements are a precursor to additional increases in capacity and attendance,” Ehrlich wrote.

Ratings And Price Targets:

• CFRA has a Buy rating and $220 target.
• Morgan Stanley has an Overweight rating and $210 target.
• Bank of America has a Buy rating and $223 target.
• Needham has a Hold rating.

The stock trades around $174.21 at publication time.