With Covid-19 decimating theme parks, sports, production and other pillars of its business, the Walt Disney Co. should be limping toward the end of 2020.
Instead, investors have bought into the media giant’s resilience in a big way, sending the company’s stock up more than 25% in the past month. Shares finished today at $154.40, their highest closing price ever, after peaking at $157.45 earlier in the day.
The balance sheet may be in tatters (with two straight quarters of losses and the first fiscal year of red ink in 40 years) but the stock is keeping the dream alive for a return to glory. To quote the 1964 theme song reprised in the latest DisneyWorld TV ads, “There’s a great big beautiful tomorrow.”
Vaccine approvals and the prospect of more normal business dynamics (and life in general) in 2021 have boosted confidence, but the optimism has more to do with the company’s investor presentation on Thursday. In an epic event slated to last four hours, Disney will touch on a range of business lines but mostly lay out its streaming plans. Details are being held close to the vest, and the executive team has been sequestered for days of rehearsals and pre-tapings. But expect plenty of announcements of new film and series projects from Marvel, Lucasfilm, Pixar and other corners of the kingdom. There will also likely be potential game-changers having to do with film release windows, new premium streaming tiers, subscriber projections, international programming and sports.
Aftershocks continue to be felt from WarnerMedia’s call last week to send all Warner Bros 2021 movies to stream on HBO Max at the same time they open in theaters. With considerable blowback from the talent community and finance partners hitting Warner, Disney could win points Thursday even if it merely gestures at theaters as a key venue (which they are). The company has minted money theatrically and controls more than 40% of U.S. box office. With theaters closed, especially in top markets like New York and LA, the company re-routed Hamilton, Mulan and Soul to Disney+ in 2020 and, as Deadline has reported, will likely do so with releases like Cruella, Pinocchio and Peter Pan.
While the $30 Premier Access charge to subscribers for Mulan was widely seen as aggressive, CEO Bob Chapek has indicated the company could continue with the model, perhaps at a different price point. Conceptually, it is akin to the early electronic sell-through window that Chapek helped develop when he was overseeing Disney’s home entertainment operations in a previous corporate exec chapter.
Ben Swinburne of Morgan Stanley said he expects the company will increasingly “embrace” and “leverage” Disney+ and that its streaming release plan “likely incorporates a continued Premier Access model.” Releasing day-and-date in theaters and on Disney+ “would be optimal for Disney and consumers alike,” he wrote in a note to clients.
Among the elements likely to get stage time is the company’s dramatic reorganization earlier this fall, with Kareem Daniel appointed to a key executive role overseeing a single, central distribution group. A single P&L for projects is the result, but there have been questions about how the older protocols will segue to the new. The theme parks business — hardly in need of extra promotion in April 2019, the last time Disney did an investor day — will also likely get more than a passing shout-out. While Disneyland is expected to remain closed until well into 2021, other parks have been open.
After Disney’s last investor day in 2019, the stock roared ahead 10% the next day. Then-CEO Bob Iger unveiled a bold capstone of his run of deals for BAMTech, Hulu and most of 21st Century Fox, projecting 60 million to 90 million subscribers to Disney+ in its first five years. Drawing gasps inside a soundstage on the company’s main lot in Burbank, the company clinched the pitch by revealing the price of Disney+: $7 a month. That’s less than half of what WarnerMedia charges for HBO Max or the most popular Netflix subscription plan.
In part due to pricing, Disney+ racked up 73.7 million global subscribers by early November. Alan Gould, an analyst with Loop Capital, predicts that the company will double its subscriber forecasts to 120 million to 180 million by fiscal 2025. The company’s spending will also jump up, especially with theaters closed, he and other analysts predict. Gould sees the dedicated budget for streaming originals reaching $7 billion a year by 2025, up from initial levels of $2 billion.
A number of upward revisions of price targets and a key upgrade crossed the transom Wednesday. Gould, who rates Disney stock a “buy,” raised his 12-month price target on its shares to $175 from $150. Morgan Stanley’s Ben Swinburne reaffirmed his “overweight” rating and lifted his target to $175 from $160.
Steven Cahall of Wells Fargo upgraded Disney shares to “overweight” from “neutral,” writing in a note to clients that Disney is “set to complete its transformation into a global streaming content company.”
KeyBanc also initiated coverage of Disney at “overweight,” with a $177 price target.
ESPN, even more than the movie studio, is the subject of vigorous debate among investors. Some on Wall Street predict that ESPN could be fully unbundled from pay-TV. At 10.3 million subscribers, ESPN+ has exceeded expectations but is not a firmly established must-have for sports fans. Still, many variables remain, including massive NFL and NBA renewal talks.
Michael Nathanson with MoffettNathanson doesn’t expect a dramatic move on ESPN Thursday. “Given that there are still 80 million paying homes in a bundle that is driven by live sports, why would Disney risk cannibalizing this revenue stream to find new sports customers residing in the 30 million broadband-only home universe?” he asked in a recent note to clients. “We can see ESPN+ adding new niche sports like the NHL (as a new rights deal is being negotiated) as it did with the PGA, but we don’t think Disney will use the investor day to blow up the ecosystem.”
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