On a downbeat day for most stocks, Disney shares have posted solid gains after a resoundingly positive verdict on the company’s streaming progress by an analyst at a major Wall Street firm.
The stock was up 3% in mid-day trading, at around $136 a share, on track for its highest closing price since February 21. Shares have slipped about 6% in 2020 to date, but have recovered over the summer after a steep plunge in February and March as investors processed the extent of the company’s vulnerability due to COVID-19. The Nasdaq, S&P 500 and Dow Jones Industrial Average all lost ground Tuesday, putting Disney’s upswing in starker relief.
“Disney is succeeding in the land-grab phase of direct-to-consumer,” Deutsche Bank analyst Bryan Kraft wrote in a note to clients. It “has the most clear path to successfully transitioning its general entertainment programming and content production businesses into a globally scaled, vertically integrated streaming entertainment leader.”
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Kraft upped his rating on the media company’s shares to “buy” from “hold” and raised his 12-month price target to $163 from $128.
While movie theaters, sports and theme parks — all cornerstones for Disney — are in a fragile early stage of recovery, streaming has been a bright spot for the company. Last Friday, Mulan was released as a “premier access” title, available for $30 to the 60 million-plus global subscribers to Disney+. Across Hulu, ESPN+ and Disney+, the company has surpassed 100 million total subscribers.
Disney has not shared any viewership insights on Mulan as of yet. Sensor Tower and Apptopia, two app analytics firms, released figures showing a boost in Disney+ downloads from Mulan. (The major caveat is that they only measure mobile platforms, not smart TVs, so they miss a large swath of the audience.) Regardless of how many new subscribers came in, the profitability motive is clear. Unlike a typical PVOD release, where third parties take a sizable cut of each transaction, Disney owns the vast majority of Mulan dollars, apart from a slice going to in-app payment parters Roku, Apple, Amazon and Google.
Kraft said Disney has made several moves to position itself for the overall shift to streaming, Kraft wrote. Key advantages include “(a) higher pricing, (b) leveraging the Disney+ base to distribute the soon-to-be-launched Star branded streaming service, and (c) an inevitable shattering of today’s exclusive theatrical window,” the analyst said. The disruption in theatrical, he explained, will “make room for new premium video-on-demand windows that enhance monetization of film studio output and add consumer utility to the Disney+ service.”
The “clearest sign” of a true strategic adjustment, Kraft maintained, is the company’s decision to shutter some traditional pay-TV networks in international markets, including the UK. The willingness to pull those plugs, he wrote, is a “sign of confidence that direct-to-consumer will more than offset lost network revenue.”
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