Disney (DIS) Dips As Streaming Business Shows Signs of Slowing Down, Analysts 'Very Bullish' on LT Opportunity

May 14, 2021 7:38 AM EDT
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Price: $172.42 -1.28%

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Shares of The Walt Disney Company (NYSE: DIS) are down 3.5% in the pre-market Friday after the company missed on analysts’ Q2 views for the number of digital subscribers.

The company said it made a profit of $0.79 per share to smash the $0.27 expected from the Street. However, the company delivered a miss on the revenue front as sales came in at $15.61 billion vs $15.87 billion expected.

“We’re pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fueling long-term growth for the Company,” said Bob Chapek, Chief Executive Officer, The Walt Disney Company.

"This is clearly reflected in the reopening of our theme parks and resorts, increased production at our studios, the continued success of our streaming services, and the expansion of our unrivaled portfolio of multiyear sports rights deals for ESPN and ESPN+."

Moreover, Disney Plus now has 103.6 million subscribers, which is lower than the 109 million expected from market analysts. Across all platforms, Disney has around 159 million total subscribers.

Still, eMarketer analyst Eric Haggstrom is positive about the outlook for Disney Plus.

"(Disney+) growth is significantly decelerating as the initial pandemic boost has waned. Given Disney's content investments, subscriber growth should return strongly once this short-term turbulence ends."

The company reiterated its multi-year target of having between 230 million and 260 million subscribers at Disney Plus by 2024. On the other hand, revenue from Disney theme parks plunged by 44% to $3.2 billion, as many of these are still either closed or operating at limited capacity.

Elsewhere, Disney posted average monthly revenue per user of $3.99, which is 29% lower compared to a year ago. This is a result of the launch of Disney Plus Hotstart, the company said, while the average revenue per paid Disney Plus subscriber is $5.61, excluding Hotstar. ESPN Plus, on the other hand, witnessed the average monthly revenue per paid subscriber soar from $4.24 to $4.55.

RBC analyst Kutgun Maral left its “Outperform” rating and $202.00 price target unchanged following Q1 results. Although he remains “very bullish on the long-term opportunity,” he expects shares to remain range-bound in the near-term.

“The Disney bull thesis has been predicated on continued momentum across the incredibly successful direct-to-consumer pivot and the theme parks coming back with an improved topline and margin profile post-pandemic. We expect the DTC narrative to take a breather for a brief period following a modest Disney+ net adds miss (particularly across non-Hotstar markets) and commentary that its net adds will decelerate in the back-half of FY21,” the analyst said in a memo.

“However, moving beyond this hiccup from a temporary disruption to cricket in India and pushing out the Star+ launch in LatAm, we continue to see the path to growing total DTC subs from 159mm today to 300-350mm by FYE-24 as structurally sound, particularly as the content pipeline strengthens from the studio nearing full production and ESPN+ continues to bolster its sports rights portfolio. At the Parks, strong underlying demand trends, the ongoing vaccine rollout and gradual lifting of government restrictions, and improvements made to operating procedures through the pandemic, are supportive of a faster-than-expected recovery, higher long-term margins, and possibly a re-rating.”

Morgan Stanley analyst Benjamin Swinburne noted the downside surprise in subscribers but says that all signs point to a strong reopening across the cyclical and COVID-related parts of Disney's businesses.

“As the pandemic subsides over time, sports returns to its normal cadence, and consumers return to theaters - all of Disney's related businesses should recover quickly and contribute to significant earnings growth. On the path towards global streaming scale, it was clear at Disney's December 2020 investor day that the content quantity would be more modest in F21 given COVID's impact on production. The key titles and quantity of key titles really begin in F22in earnest, building further into F23. Factoring in a lack of new market launches beyond F1Q, we are not surprised by F2Q sub growth or the commentary for a more modest 2H of the year. Consensus expectations, however, were for a more front-end loaded growth curve on the road to 230-260mm Disney Plus subscribers in FY24. We remain confident in the F24 guidance, but continue to see net adds building over time,” the analyst wrote in a note sent to clients.



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