Needham analyst Laura Martin reiterated a Hold rating on Walt Disney Co DIS.
The re-rating reflects Martin's belief that consensus estimates for DIS are too high owing to DTC losses and another year of weak earnings from linear TV and box office.
Martin is worried that the Hollywood strikes and the recent carriage dispute with Charter Communications, Inc CHTR indicate that DIS and other studios have been "over-earning" in the past. Now, their value chains want a larger revenue share.
Also Read: Charter's Future Brightens With Disney Deal And Network Upgrades: Analyst
Also, $60 billion of capital spending at Parks & Resorts implies rising capital intensity and downside risk to DIS's valuation multiple.
Longer-term, Martin said that DIS's asset mix of both digital and physical assets (i.e., an Omniverse) maximizes its economic value capture, that DIS benefits from generative AI, and that DIS will be a takeover target.
For the first time, DIS disclosed ESPN's revenue and operating income.
ESPN represented 30% of DMED (excludes Parks) revenue and 68% of its operating income for the first nine months of FY23, about 30% of DMED revenue and 64% of its operating income in FY22, and about 30% of DMED revenue and 37% of its operating income in FY21.
ESPN+ streaming revenue was $1.3 billion in FY21, $1.6 billion in FY22 (+23% Y/Y), and $1.5 billion YTD in FY23 (+15% Y/Y). ESPN+ losses were $427 million in FY21, $591 million in FY22, and $148 million YTD FY23.
Of ESPN's $13.2 billion revenue YTD FY23, affiliate fees were 61% ($8 billion), advertising was 24% ($3 billion), streaming revenue was 8% ($1 billion), and other was 6%.
87% ($11.5 billion) of ESPN revenue and greater than 100% of operating income came from the U.S. YTD FY23. The analyst concludes that ESPN is a Crown Jewel, making it attractive to bidders.
Martin projected FY23 revenue and EPS of $89.09 billion vs. consensus $89 billion and $3.71 vs. consensus $3.68. The analyst estimated FY24 revenue and EPS of $93.52 billion vs. consensus $93.6 billion and $4.93 vs. consensus $4.74.
Price Action: DIS shares traded higher by 0.31% at $84.94 on the last check Thursday.
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