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DIS

Disney

$101.76

-5.22 (-4.88%)

, NFLX

Netflix

$178.36

-2.97 (-1.64%)

11:30
08/09/17
08/09
11:30
08/09/17
11:30

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.

DIS

Disney

$101.76

-5.22 (-4.88%)

NFLX

Netflix

$178.36

-2.97 (-1.64%)

DIS Disney
$101.76

-5.22 (-4.88%)

08/09/17
NEED
08/09/17
NO CHANGE
NEED
Hold
Needham applauds BAMTech acquisition by Disney
Needham analyst Laura Martin is lowering her 2018 estimates for Disney (DIS), but applauds the BAMTech acquisition as a fast-pass way to escape the U.S. TV-bundle box, albeit expensive as the former said it would be modestly dilutive for 2 years. The analyst believes that every content company must follow CBS (CBS) into the direct-to-consumer channel business to maintain growth. Rather than build it, Disney bought this capability which should accelerate time to market, Martin adds. The analyst reiterates a Hold rating on Disney's shares.
08/09/17
MSCO
08/09/17
NO CHANGE
Target $210
MSCO
Overweight
Netflix Overweight thesis remains intact, says Morgan Stanley
Morgan Stanley analyst Benjamin Swinburne said Netflix's (NFLX) strategy to build its own vertically integrated global content brand will mitigate the loss of Disney (DIS). Swinburne expects some impact to Netflix's second half 2019 when Disney rolls off but said his Overweight thesis and $210 price target remain intact.
08/09/17
FBCO
08/09/17
NO CHANGE
Target $120
FBCO
Outperform
Disney price target lowered to $120 from $125 at Credit Suisse
Credit Suisse analyst Omar Sheikh lowered his price target for Disney to $120 from $125, while reiterating an Outperform rating on the shares. The analyst believes Disney's decision to shift its distribution strategy toward a direct to consumer model leans into the accelerating shifts in video consumption. Ahead is now a period when EPS/free cash flow growth will be diluted by investment, he notes, adding that he believes the company is laying the groundwork for a "stronger future strategically," not least by putting ESPN in a stronger position to successfully renew key sports rights in 2021/2022.
08/09/17
UBSW
08/09/17
NO CHANGE
Target $190
UBSW
Buy
UBS sees little to no impact to Netflix from Disney streaming service launch
UBS analyst Doug Mitchelson noted Disney (DIS) announced plans to launch its own streaming video service in 2019 and said it will not enter into any new licenses with Netflix (NFLX). Disney management has said they still view Netflix as a valuable partner, Mitchelson pointed out. The analyst sees little to no impact to Netflix, noting Disney's offerings will not launch for two years, Disney is adding original content, and he believes the streaming video marketplace will continue to grow. Mitchelson reiterated his Buy rating and $190 price target on Netflix shares.
NFLX Netflix
$178.36

-2.97 (-1.64%)

08/09/17
JPMS
08/09/17
NO CHANGE
JPMS
Overweight
Disney exit unlikely to have big impact on Netflix subscribers, says JPMorgan
JPMorgan analyst Doug Anmuth does not expect Disney's (DIS) departure to have a material impact on Netflix's (NFLX) subscriber numbers. While Disney's announcement came earlier than expected, the company's move to go direct is not a surprise, Anmuth tells investors in a research note. He believes Disney (DIS) content likely accounts for a single-digit percentage of Netflix's viewing time. The analyst has an Overweight rating Netflix shares.
08/09/17
JEFF
08/09/17
NO CHANGE
Target $110
JEFF
Hold
Disney likely to create value well above Netflix deal, says Jefferies
Jefferies analyst John Janedis believes the strategic initiatives announced last night by Disney (DIS) are more likely than not to drive long-term value for the company. 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 (NFLX) distribution deal, Janedis tells investors in a post-earnings research note. He keeps a Hold rating on Disney shares with a $110 price target.

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