Shares of Disney (DIS) are on the rise on Wednesday after the company reported mixed third quarter results, announced a new entertainment streaming service in fiscal 2021 under the Star brand, said that Disney+ subscribers will get exclusive access to the release of "Mulan," and highlighted that "the global reach of our full portfolio of direct-to-consumer services now exceeds an astounding 100 million paid subscriptions." Following the news, Credit Suisse analyst Douglas Mitchelson upgraded the stock to Outperform, arguing that the company’s streaming strategy is "trumping" COVID.
RESULTS: After market close on Tuesday, Disney reported third quarter earnings per share excluding some items of 8c, versus a consensus loss of (64c), and reported revenue for the quarter of $11.78B, which was weaker than the expected $12.39B. The company also said that the global reach of its full portfolio of direct-to-consumer services "now exceeds an astounding 100 million paid subscriptions -- a significant milestone and a reaffirmation of our DTC strategy, which we view as key to the future growth of our company."
Disney reported third quarter Media Networks revenue of $6.52B versus $6.71B last year, third quarter Parks, Experiences and Products revenue $983M versus $6.58B last year, and third quarter Cable Networks revenue down 10% to $4.0B. The company added that "operating income increased 50% to $2.5B. The increase in operating income was due to increases at ESPN and, to a lesser extent, the FX Networks.” Additionally, Disney reported third quarter Disney+ subscribers of 57.5M and ESPN+ of 8.5M subscribers versus 2.4M last year.
Disney also announced that it will offer the live-action "Mulan" on Disney+ for $29.99 starting September 4 and said it will launch an international Direct-To-Consumer entertainment offering under the Star brand in 2021.
STREAMING STRATEGY TRUMPING COVID: Credit Suisse analyst Douglas Mitchelson upgraded Disney to Outperform from Neutral with a price target of $146, up from $116, following Tuesday’s fiscal third quarter results. The analyst argued that while COVID-related dynamics are likely to severely impact many of Disney's businesses for some time, he is removing the 20% risk discount he applied to shares given increased visibility. Mitchelson values Disney's streaming business at $68B, saying this is "well supported" by Disney+'s performance, likely growth from the 100M new homes being launched the next few months, and the announcement of an international general entertainment streaming service launching in 2021. With new CEO Bob Chapek now indicating an "innovative and bold" further pivot to streaming, Disney shares should be "even more aggressively positioned as a streaming growth story," Mitchelson told investors in a research note.
Meanwhile, BMO Capital analyst Daniel Salmon raised his price target on Disney to $150 from $140, while keeping an Outperform rating on the shares as he believes "a slew of new news reinvigorated the Bull case," including another investor day coming "in a few months," the launch of a new STAR-branded general entertainment app internationally, and the announcement that "Mulan" will premiere on Disney+ in most countries "on a premier access basis." Salmon now has higher estimates and a higher target for the core business, as well as a higher value for direct-to-consumer as the shift to streaming accelerates.
Keeping an Overweight rating and a price target of $135 on Disney, JPMorgan analyst Alexia Quadrani noted that the company provided a great deal of detail on its third quarter earnings call, highlighting both ongoing strategic changes to its business and operational updates. The analyst believes Disney continues to surprise with its success in its digital rollout, which "now has another leg to it" with the launch of its Star offering next year. The company remains her top pick in media.
'TOO EARLY' TO BUY: Not as bullish on the name, Needham analyst Laura Martin said Disney underperformed her lowered estimates "by a lot" in its fiscal third quarter, noting that its revenue was 23% below her estimate and its adjusted earnings per share was 55% below her forecast. She sees it as "too early" to buy Disney shares and remains on the sidelines with a Hold rating until the structural economic impacts of COVID-19 are clearer.
PRICE ACTION: In afternoon trading, shares of Disney have gained over 8% to $127.12.
Disney
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