Bob Iger faces a challenging task of orchestrating a turnaround for Walt Disney Co. While some on Wall Street acknowledge signs of progress, others worry that Iger may be overplaying his hand in an effort to revitalize the streaming business.
Over the past five years, Disney shares (DIS) have significantly underperformed the S&P 500 (SPX), with a 22% drop compared to a 58% increase for the index. This year, Disney's stock has only risen by 0.7%, while the S&P 500 has gained 16%.
However, could the fortunes of this media giant be on the brink of change? Wells Fargo analyst Steven Cahall suggests that a pivot may be in store.
In a note to clients following Disney's earnings report, Cahall wrote, "While it's hardly an easy road ahead, we sense a new Disney defined by adaptation, including cost cuts, price increases, content shake-ups, and portfolio shaping. Everything is on the table, and this could be the turning point."
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Cahall remains optimistic about the outlook and maintains an overweight rating on Disney's stock. However, he has slightly trimmed his price target to $146.
Echoing this sentiment, Evercore ISI analyst Vijay Jayant stated that the new initiatives to boost streaming revenue increase confidence in achieving profitability. He also highlighted the strong performance of cruise trends and international parks, despite a cooling of demand for U.S. parks. Additionally, Jayant noted that Iger has been vocal about the potential for an ESPN strategic partner and alternative options for Disney's legacy TV networks.
Disney's Streaming Developments Face Mixed Reviews
With recent updates to its streaming services, Disney is encountering mixed reviews from analysts. While some view the changes as a positive step towards growth and value creation, others express concerns about potential disruption and challenges ahead.
Analyst Peter Supino from Wolfe Research remains cautious about Disney's streaming developments. He acknowledges the possibility of higher retail prices and increased advertising revenue contributing to quicker profit for direct-to-consumer (DTC) platforms. However, he expresses concern over struggling net additions, price increases ranging from 8% to 27%, and the potential disruption caused by Disney's crackdown on account sharing in the coming year. Supino highlights that while Disney+ has a strong value proposition, the paths for ESPN+ and Hulu, being less differentiated, appear more challenging.
Another analyst, Doug Creutz from Cowen & Co., delves into consumer reception of Disney's pricing moves. He worries that consumers may respond poorly to the decision, especially given Disney's simultaneous reduction in original content production and the impact of Hollywood strikes. Creutz questions whether the rate of improvement in DTC profitability will outweigh the attrition in linear profitability. As such, he gives Disney a market perform rating with a $94 target price.
Disney's streaming developments continue to be closely observed by industry experts as the company strives to navigate the evolving landscape of digital content consumption.
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