| 2017-08-09 11:30:02|
DIS, NFLX 11:30 08/09 08/09/17
Street sees promise for Disney, little risk for Netflix, in new streaming plans
Following the announcement that Walt Disney (DIS) is ending its distribution agreement with Netflix (NFLX) and launching two streaming services, several Wall Street analysts have argued that while they are bullish on the new Disney products, they see little risk to Netflix's subscriber base as a result of the shift from the media giant. RESULTS: Last night, Disney reported third quarter earnings per share of $1.58 and revenue of $14.24B, with consensus at $1.55 and $14.42B, respectively. The company also announced that it has agreed to acquire majority ownership of BAMTech, and will launch its ESPN-branded multi-sport video streaming service in early 2018, followed by a new Disney-branded direct-to-consumer streaming service in 2019. Under terms of the transaction, Disney will pay $1.58B to acquire an additional 42% stake in BAMTech from MLBAM, the interactive media and Internet company of Major League Baseball. Additionally, Disney said it will end its distribution agreement with Netflix for subscription streaming of new releases, beginning with the 2019 calendar year film slate. STREAMING UPSIDE FOR DISNEY: Commenting on the announcement, Piper Jaffray analyst Stan Meyers told investors that he believes Disney's two new streaming services will bring upside from new high margin subscribers. Meyers added that while last night's quarterly results largely missed his expectations, he remains upbeat on Disney shares as he sees growth across Parks, Studio, Consumer Products and the launch of new streaming services more than offsetting ESPN's challenges. He reiterated an Overweight rating and $130 price target on Disney's shares. Meanwhile, his peer at Jefferies told investors that he thinks the strategic initiatives announced by Disney are "more likely than not" to drive long-term value for the company. Analyst John Janedis argued that the potential value creation over the next five years is likely worth "well above" the implied $2B-$3B in Disney's enterprise value from the Netflix distribution deal. NETFLIX 'DOES NOT NEED' DISNEY: While Netflix's distribution agreement with Disney was a "nice to have," it was not a "need to have," Piper's Michael Olson told investors this morning. The analyst noted that he expects the actual impact on Netflix's subscriber base to be minimal. Assuming Netflix will spend about $7B on content in 2017, the amount spent for Disney programming only accounts for 3% of overall content costs, which is likely consistent with time spent viewing Disney content by Netflix subscribers, he argued. Sharing a similar opinion, JPMorgan analyst Doug Anmuth also told investors that he believes high quality theatrical content from Disney and Pixar has been a good addition to Netflix's service over the past year, but it likely accounts for a single-digit percentage of its viewing time. Netflix continues to heavily invest in new TV and film content that is licensed, original, and self-produced, he noted, adding that he does not expect Disney's departure to have a material impact on subscriber numbers. Moreover, Anmuth pointed out that while licensed content will always be an important part of Netflix's service, the company is clearly becoming less dependent on third-party content over time. PRICE ACTION: In late morning trading, shares of Disney have dropped 4% to $102.26, while Netflix has slipped about 3% to $173 per share.