Morgan Stanley More Bullish On Disney On Expected Streaming Subscription Growth

The Mouse is going to roar into a new world of streaming entertainment.

The new Disney+ streaming service from Walt Disney Co DIS is laying out an aggressive global distribution strategy that could bring it more than 15 million subscribers next year and more than 75 million by the end of 2024, Morgan Stanley said in a Wednesday update.

The Analyst

Morgan Stanley’s Benjamin Swinburne reiterated an Overweight rating and kept a $160 price target on Disney.

Morgan Stanley increased its estimates for eventual Disney+ subscribers, citing its announced distribution partnerships, which have outpaced some expectations. Disney has also moved to offer aggregate subscription agreements, such as the Disney+-Hulu-ESPN bundle, which boosts its attractiveness.

“Recent device distribution deals, bundled pricing, and early discounted offers increase our conviction in the US subscriber adoption of Disney Plus,” Swinburne wrote in a note. “We see Disney as unique among peers with the brands and scale to build a global, profitable streaming business.”

Across all the Disney networks, including others like ESPN, Swinburne could see Disney hitting as many as 140 million direct-to-consumer subscriptions by the end of fiscal 2024.

Timeline Is Question

The question is when the earnings will go positive.

Swinburne actually is lowering near-term EPS estimates for Disney, following lower fourth-quarter guidance and worse-than-expected third-quarter results. He cited a combination of greater margin pressure from investment in the content that eventually should make it a winner, continued pressure on legacy networks, like ESPN and ABC, from cord cutters, and modestly lower margins in Disney’s theme parks unit.

Swinburne said fiscal 2024 should be the year the direct-to-consumer businesses start to generate positive earnings. But the Disney content library ultimately should be a winner for streaming, he said.

Price Action

Disney shares traded around $128.28 at time of publication. Disney+ will launch on Nov. 12.

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Photo courtesy of Disney.