Hollywood Reporter: Wall Street Likes Bob Iger’s Disney Growth Vision, So Far

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If the first year of Bob Iger’s sequel era leading Disney was centered on “fixing” (and, in some cases, dismantling former chief Bob Chapek’s org structures, along with 8,000 layoffs), the mogul now wants Wall Street to view Hollywood’s marquee brand as a “building” growth vehicle, premised on righting the ship in direct-to-consumer streaming with Disney+ and Hulu merging, a bright outlook for its Parks and Experiences division and cost-efficiencies found in managing the stagnant to declining linear TV assets like ABC. Also: setting up ESPN for its future transition to streaming as leader in live sports (“ESPN is the number one brand on TikTok,” Iger touted).

It’s a tall order. On a Nov. 8 earnings call after reporting 7 million subscriber adds to Disney+’s core base, which now totals 112.6 million, Iger rattled off that Disney needed to “realign pricing and marketing strategies,” “get the technology right,” merge “creative and distribution teams” but painted this scenario: “just imagine the opportunities that are further combined Disney+, Hulu and ESPN streaming experience could offer us as a company and our consumers.”

While the goal is profitability by the end of fiscal 2024, the streaming unit lost $387 million in its latest quarter. Iger also signaled that Disney is open to making more content licensing deals with Netflix — outside of core brands like Marvel, Pixar and Star Wars — but won’t “chase bucks” with the “building blocks” that are the “future of our streaming business.” (That comment was seen as a slight toward Warner Bros. Discovery, which has licensed some HBO shows to Netflix.) Total content spend on sports rights as well as films and TV shows will decline from $27 billion to $25 billion next year.

Disney stock, year-to-date, is down about five percent to $84.50. But analysts largely think there’s room for growth there, with many having stock target prices north of $115 in their post-earnings reports. “We lost some focus,” Iger conceded on the call, speaking to quality concerns about the company’s films and TV series. “I’m mindful of the fact that our performance from a quality perspective wasn’t really up to the standards that we set for ourselves.” Wall Street, at least for now, appears forgiving.

JP Morgan’s team led by Philip Cusick has an “overweight” rating and a price target of $120, citing Iger’s ability to trim about $7.5 billion in cost reductions. For guidance next quarter, Disney interim CFO Kevin Lansberry said on an earnings call to expect at Disney+ “uptick in churn from the recent US price increases, as well as from the end of the summer promotion,” leading to less subscriber adds. But Cusick’s expectation is a “rapid decline in streaming losses in the next year,” a show of optimism.

Wells Fargo’s Steven Cahall raised his price target to $115 with an “overweight” rating and titled his report “Mojo Back.” But notes, “There is still work to do to improve content — we expect fewer releases incl. fewer series vs. films to streaming as cash content comes down.” And, in his “downside scenario,” the analyst considers $75 a price target if ESPN loses out on sports rights due to “the notion that rights costs exceed revenue due to the changing ecosystem,” nodding to the possibility of tech giants like Amazon and Apple further moving into that space and disrupting it with big spending.

Guggenheim’s Michael Morris is keeping a “buy” rating with a $115 price target, but that appears due to optimism about the Parks division, which grew domestic revenue 7.5 percent and international revenue 55 percent in the quarter after ticket price increases abroad. Morris wrote the $115 target “reflects our confidence in the long-term strength and potential for Parks growth” which hit $8.16 billion in revenue in the quarter while being “lukewarm on the incremental value of more Hulu/Disney+ integration.” The Disney+-Hulu merger will launch in “beta” in December for a full launch in spring of next year.

A MoffettNathanson analyst team led byMichael Nathanson echoed that price target call at $115 and a “buy” rating, and was cheered by Bob Iger’s spending restraint. “The disclosure that non-sports content spending would fall to $15 billion vs. prior expectations of around $20 billion is a great first step,” Nathanson wrote, adding: “the massive expansion in non-sports content spend in FY 2021 and FY 2022 actually did not produce any discernible improvement in subscriber growth in core Disney+ and Hulu.” The Nathanson crew also wonders “if there will be more reductions in overhead, tech and content spend” once Disney+ and Hulu actually merge, given redundancies.

Meanwhile, Bank of America analyst Jessica Reif Ehrlich reiterated a “buy” rating and a $110 price target, noting earnings “were mixed with revenues below our forecast while operating income was above our expectations,” yet “strong momentum in parks heading into FY24, particularly within International and Cruise ships. While several strategic questions remain, we remain confident in Bob Iger’s ability to navigate the company through this transition period.” 10-On the lower end of the stock price range, Bernstein analyst Laurent Yoon has an “outperform” rating and a $103 target price. The expert noted that, if around $10 billion in sports rights are excluded, $15 billion in content spend “gets close” to Netflix’s plan of $17 billion as a content budget for 2024, which “positions Disney+Hulu as a formidable #2” and, with ESPN eventually transitioning to streaming, “perhaps it even has a shot at #1.”

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