Walt Disney Co.’s stock surged toward yet another record after the media giant impressed investors and analysts with its plans to bet even bigger on streaming.
The company set an upbeat target for its streaming future during its Thursday investor day, projecting that it could have 230 million to 260 million Disney+ subscribers by the end of fiscal 2024. Disney’s DIS, +14.14% previous target was for 60 million to 90 million subscribers by 2024, but Disney+ has already racked up 86.8 million.
Shares of Disney were up more than 13% and on track for their largest single-day percentage gain since March 24, when the shares climbed 14.4%.
Disney hopes a wave of new streaming content will help fuel that subscriber boom. It plans 10 new Marvel series and 10 new “Star Wars” series in the years to come, and it intends to roll out more than 100 titles overall each year.
“While we expected to hear about Disney’s accelerated content investment in their [direct-to-consumer] businesses, the sheer size and quality of the content tsunami headed to Disney+ was mind-blowing and frightening to any sub-scale company thinking about competing in the scripted entertainment space,” MoffettNathanson analyst Michael Nathanson wrote, who has a neutral rating on the stock.
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The company has high ambitions in streaming beyond Disney+ as well, targeting 300 million to 350 million global streaming subscribers across Disney+, Hulu, and ESPN+. If Disney reaches this goal, it could see streaming become the largest portion of its business by revenue at perhaps $35 billion in fiscal 2024, wrote Morgan Stanley Benjamin Swinburne.
“if Disney hits its 300 million to 350 million subscriber guidance, it could match or surpass Netflix NFLX, -0.71% in customers by FY24,” Swinburne continued.
He noted that the company expects streaming to record trough losses in fiscal 2021, with Hulu and ESPN+ reaching profitability in fiscal 2023 and Disney+ following the next year.
“That financial profile is now expected to deliver a materially larger customer and revenue base than previously expected,” wrote Swinburne, who has an overweight rating and $175 price target on Disney’s stock. “In other words, if successful, Disney will deliver a similar ramp in earnings from the FY21 trough to FY24 but exit with a much larger streaming asset value and, potentially, share price.”
The Disney+ profitability target was cause for some hesitation from Cowen & Co. analyst Doug Creutz, however. He wrote that while Disney dramatically increased its Disney+ subscriber projections for fiscal 2024, it didn’t accelerate its profitability goal for the service.
“It’s not clear how this leads to an improved long-term outlook for earnings power,” Creutz wrote. “[When the company with by far the most impressive array of content on the planet tells you that at well over 200 million global subscribers, they will just be starting to achieve profitability, (1) you should believe them, and (2) you probably ought to wonder if the economic returns on [direct-to-consumer] video content aggregation can ever justify the rich valuations currently being granted by the market.”
He rates the stock at market perform with a $115 target price.
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Bernstein analyst Todd Juenger also wasn’t ready to jump on the Disney bull train after the investor day. He wrote that while Disney’s subscriber target of 230 million to 260 million for Disney+ marked a huge increase from before, the new goal includes perhaps 85 million Hotstar subscribers in India who pay far less for the service and may only use it during cricket season.
At the midpoint of the subscriber guidance, that leaves about 160 million “core” Disney+ subscribers, he wrote, versus a bullish buy-side estimate of perhaps 150 million.
“So that exceeds the bar, for sure, but not as wildly as the headline number sounds,” Juenger wrote. “Where the stock ultimately settles down depends largely on how the market decides to treat the value of the Hotstar subs, and how much the market cares about increased cannibalization of content licensing and international linear network distribution.”
He has a market perform rating and $116 price target on Disney’s stock, which has gained 21% so far this year as the Dow Jones Industrial Average DJIA, -0.24% has risen 4.7%.
