Walt Disney (DIS) Stock Slips as Barclays Downgrades Amid Disney+ Growth Slowdown

October 18, 2021 11:23 AM EDT
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Barclays analyst Kannan Venkateshwar downgraded shares of Walt Disney (NYSE: DIS) to Equal Weight from Overweight with a price target cut by 17% to $175.00 per share.

The analyst believes the long-term guidance for Disney+ subscriber additions is at risk following a “significant slowdown” in growth this year.

“Despite launching new franchise titles, day and date movie releases and Star+. Part of this slowdown could be a function of growth pull forward into 2020 and promo roll offs, but we believe it could be due to structural factors capping growth as we detail in the note. In order to get to its long term streaming sub guide, DIS needs to more than double its current pace of growth to at least the same level as Netflix. We believe this may be tough to do. The company’s growth in India is also a function of cricket rights which reset after next year. Recent M&A in the market may result in either more pressure on rights costs or a loss of these rights. Consequently, we take estimates for Disney+Hotstar subs to ~200mm subs in 2024 vs the 250mm guidance midpoint,” Venkateshwar said in a client note.

Given the revised estimates on the streaming business, which drove DIS stock higher in the recent 12 months or so. The analyst argues that lower estimates from Street on Disney’s streaming business could “drive a shift in the valuation framework away from a revenue multiple-based sum of the parts to an earnings multiple-based framework.”

“Assuming peak pre streaming P/E multiples for Disney on present 2024 consensus EPS woud imply meaningful downside to the stock from present levels. This of course does not account for the slowdown in streaming growth. Even if investors continue using a revenue multiple based SOTP framework, we estimate a 6x 2025 revenue multiple (slightly higher than Netflix for the same period) on 200mm subs instead of 250mm for Disney+Hotstar would imply a ~$15/share negative impact assuming nothing else changes. However, if growth slows, this multiple is also unlikely to trade at Netflix levels which could imply further downside and very limited upside from present levels on an absolute basis,” the analyst concluded.

Shares of Disney are down nearly 3% today.



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