Disney Results Disappoint But Analysts Find Favor in Streaming
Disney Results Disappoint But Analysts Find Favor in Streaming
(Bloomberg) -- Walt Disney Co.’s third quarter profit miss caught Wall Street by surprise, prompting several analysts to lower their price targets after the company’s integration of assets acquired from 21st Century Fox proved more challenging than expected.
Shares in the media powerhouse declined as much as 6.8% on Wednesday, the most since August 2015, as profit for the third quarter missed the average analyst estimate by forty cents. The shortfall sent a gut check to investors who’d been riding a bullish high as management readies to launch its Disney+ streaming service.
Despite the hiccup, the most likely driver of the stock will be the success of Disney’s streaming services, Loop Capital told clients in a note. The company disclosed a new bundling for all three of its platforms at an initial price point of $12.99 per month, a surprisingly low cost which signals it plans to take on Netflix’s dominance.
Disney’s streaming foray will require ample investments to challenge Netflix, but "those investments will reap rewards for both the company and long term shareholders," said Richard “Trip” Miller, founder of Gullane Capital Partners, in a message.
Here’s what analysts are saying:
Wolfe Research, Marci Ryvicker
Outperform, cuts price target to $174 from $183
"Anything that could go wrong, went wrong," Ryvicker wrote in a note to clients. "This was the messiest print we can remember literally among all of our coverage; but the Disney management team did not shy away from telling it like it is."
The misses in the quarter were spread across all segments, although Ryvicker noted "the primary drivers" seemed to be the 21st Century Fox assets, the parks division, and Star India.
"To us, the issues are both surmountable and temporary. They do not appear structural."
Cowen, Doug Creutz
Outperform, price target $154
Disney’s third-quarter results were "below consensus estimates, primarily driven by a worse than expected drag from the recently acquired" entertainment assets from 21st Century Fox.
Management’s guidance for another $0.45 of dilution from the Fox deal "certainly gives the appearance that the assets were handed over to Disney in questionable shape."
"While we are skeptical about the long term prospects for the Fox assets, the near-term catalyst path remains very attractive" given the Disney+ launch, domestic parks, consumer products, and studio segment.
Rosenblatt Securities, Mark Zgutowicz
Buy, lowers price target to $170 from $175
"Management took the opportunity to reset expectations lower across core Disney, including the near-term benefits from the Fox acquisition and investments at direct-to-consumer."
A number of streaming services will launch over the next year, but with Disney’s strong brands and IP, the belief is that management has "one of the few media companies that will be able to successfully navigate this transition."
Rosenblatt, in a note to clients, wants shareholders to "remember the bull case."
Loop Capital, Alan Gould
Buy rating, price target $165
"Disney reported a messy quarter" but despite "the magnitude of the miss, we are not overly concerned."
Loop Capital remains bullish for several reasons, including: management "had never provider a good breakdown of the pro-forma numbers, the quarter maintain "some one-time issues," and also due to the fact that "the stock will primarily be driven by the success of its streaming services."
To contact the reporter on this story: Kamaron Leach in New York at kleach6@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Morwenna Coniam
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