5 Thoughts From Bernstein On The Disney-Fox Deal

Walt Disney Co DIS's pending acquisition of most of Twenty-First Century Fox Inc FOXA is creating a lot of questions. Bernstein laid out five intriguing questions, one for each of the five days before Christmas, as investors continue to digest the deal.

The Analyst

Bernstein's Todd Juenger maintains a Market Perform rating on Disney's stock with an unchanged $100 price target and a Market Perform rating on Fox's stock with an unchanged $30 price target.

The Thesis

Here's a summary of five questions and answers offered by Juenger. (See the analyst's track record here.) 

• Is "New Disney" more valuable than "Old Disney"? Fox assets that Disney acquires come at a lower multiple, but Disney is consolidating its power and option value.
• How much will Disney invest in its streaming business? Disney will likely spend north of $5 billion a year, which would translate to a $2- per-share negative impact to its EPS. This isn't necessarily reason for concern, as Disney will be offering a compelling service to justify users paying $6 to $10 a month.
• If EPS moves down, will the multiple follow suit? The stock multiple of "New Disney" should expand higher to "recognize the value of the asset being created by the investment." But the multiple expansion may not be enough to offset the EPS decline.
• Will Disney recoup its investment? If Disney achieves an average revenue per user of $8 for its streaming service, it needs 50 million or so users to break-even. Disney could hit this number, but only after "many years."
• Will the legacy business decline? Disney is stuck in an "innovator's dilemma," as the more successful Disney is in its streaming video platform, the faster its legacy traditional TV network business will decline.

Price Action

Shares of Disney were trading lower by 1.54 percent Wednesday afternoon while shares of Fox were lower by 1.77 percent. 

Related Links:

What's Next For Netflix, Hulu After The Disney-Fox Deal?

Wall Street Reacts To Disney's Purchase Of Fox's Entertainment Assets