Wall Street Weighs In On Disney's Impressive Streaming Subscriber Growth

Walt Disney Co DIS shares gained 6.2% on Wednesday morning after the company reported more than 100 million streaming subscribers on Tuesday and said it plans to launch an additional streaming service.

Disney reported fiscal third-quarter adjusted EPS of 8 cents, well ahead of consensus analyst estimates of a 64-cent loss. Revenue for the quarter was $11.78 billion, missing analyst expectations of $12.37 billion. Revenue was down 42% from a year ago as shelter-in-place orders forced the company’s parks, cruises and movie businesses to shutter.

However, investors cheered a Disney+ subscriber count just nine months after the service’s launch, a mark that it took Netflix, Inc. NFLX eight years to hit. The company also said it plans to launch a new streaming service in fiscal 2021 under the Star brand.

Leaning Into Streaming: Bank of America analyst Jessica Reif Ehrlich said the return of pro sports should help boost advertising revenue in the fiscal fourth quarter.

“At Studio Ent., TV/SVOD activity should help offset theatrical/home entertainment declines, further aided by Mulan release on 9/4, largely through PVOD via Disney+ at $29.99—likely a high margin opportunity in the current environment,” Ehrlich wrote in a note.

Morgan Stanley analyst Benjamin Swinburne said Disney is leaning into its streaming strategy due to COVID-19 disruptions and the early success of Disney+.

“Execution in both content and technology will remain keys to share outperformance, but we like its hand,” Swinburne wrote.

Credit Suisse analyst Douglas Mitchelson said Disney’s streaming strategy will help support what will likely be a slow recovery from COVID-19 disruption.

“Overall, with new CEO Mr. Bob Chapek now indicating an ‘innovative and bold’ further pivot to streaming, we expect Disney shares to be even more aggressively positioned as a streaming growth story (where investors have limited investment vehicles), and eventual COVID recovery play,” Mitchelson wrote.

200 Million Subscribers Ahead? Rosenblatt Securities analyst Bernie McTernan said Disney’s Star+ announcement means the company is already on the path to its next 100 million subscribers.

“While the announcement lacked details we believe it could help drive the next 100M streaming subs, which could be as soon as '22E, putting total global subscribers at 200M, similar to our forecast for NFLX at YE'20E,” McTernan wrote.

Needham analyst Laura Martin said Disney’s quarter was solid, but it’s still too early to buy the stock.

“We remain on the sidelines until the structural economic impacts of COVID-19 on DIS are clearer,” Martin wrote.

DIS Ratings And Price Targets

• Bank of America has a Buy rating and $146 target.
• Morgan Stanley has an Overweight rating and a $135 target.
• Needham has a Hold rating.
• Rosenblatt has a Buy rating and $145 target.
• Credit Suisse has an Outperform rating and a $146 target.

Disney's stock traded around $128.42 at time of publication.