Wall Street Cheers the Disney+ Price Tag

(Bloomberg) -- Investors left Walt Disney Co.’s investor day exuberant as the company’s full-fledged foray into streaming came at a $6.99 per month price-tag, undercutting Netflix Inc. The stock rose as much as 12 percent on Friday to a record high, while Netflix fell as much as 5 percent.

Analysts are excited about the massive opportunity Chief Executive Officer Bob Iger laid out, with better-than-expected metrics for Disney+ over the long term. The attractive price point suggests “a steep initial ramp in subscribers” to JPMorgan, as Disney guided for 60 to 90 million users by fiscal-year 2024.

But it may not be smooth sailing from here. MoffettNathanson LLC lowered its earning-per-share estimates through 2022 given the anticipated investments needed for the new product. And while SunTrust continues to expect Disney+ to “present manageable incremental competition” for Netflix subscriber adds, the firm does not view the new streaming service as a strong alternative to the incumbent.

Here’s what analysts are saying:

JPMorgan, Alexia Quadrani

“Disney surprised on the upside at its investor meeting yesterday, providing more financial disclosure and revealing a more content rich streaming service than previously expected.”

“With a low price point of $6.99 per month and robust content with four quadrant appeal, we would expect a steep initial ramp in subscribers.”

“Overall we walked away from the meeting very encouraged about the outlook and its likely success," wrote Quadrani in a research note, though profitability for Disney+ is not expected until fiscal-year 2024, which may prove conservative.

Resumes overweight rating, price target $137

SunTrust Robinson, Matthew Thornton

“Net-net no big surprises in terms of Disney+ pricing, timing, availability, and content.”

For Netflix, Thornton continues to expect Disney+ to “present manageable incremental competition” on new subscriber adds and feasible impact on churn.

“Finally, we continue to expect Disney+ to accelerate cord-cutting, which should be positive offset for Netflix and the OTT ecosystem.”

Disney+ features family content, while Netflix offers a much broader range of content with majority of the most-searched content spanning adult drama, comedy, horror and suspense, anime, documentaries, and international. Thornton does “not view Disney+ as a strong alternative” to Netflix.

Maintains Netflix buy rating, price target $402

MoffettNathanson, Michael Nathanson

“Disney had set a high bar of expectations and rose to the challenge. In addition to the financial projections, Disney rolled out a very impressive slate of new content and catalog titles for the highly-anticipated Disney+ platform.”

“The disclosure of the low price point generated a collective gasp in the room.” Disney+, which will include The Simpsons, “looks like a bargain compared to other entertainment options.”

Disney’s near-term investments to generate bigger gains in the long run is the “right thing” to do, writes Nathanson in a note. The firm lowered its fiscal-year 2019 EPS estimate by 5c to $6.25, but the bigger negative revisions come in FY 2020 and FY 2021 with lower EPS estimates.

Buy, price target $141

Evercore ISI, Vijay Jayant

“We think the new ambitious long-term financial targets issued at the event, both on the revenue and cost sides of the equation, reflect the scope of the project now underway.”

After incorporating new expectations, Evercore expects near-term earnings estimates between fiscal years 2020 to 2022 to come down, though longer-range forecasts should increase.

The Disney+ opportunity is massive, Jayant writes, as the “company pointed to 100 million existing consumer ‘touchpoints’ across existing business lines and to 1 billion surveyed ‘fans’ of the Disney brand in the 12 largest markets.”

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, Sebastian Silva

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