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Discovery Downgraded at MKM on Discovery+ Cost Concerns

Discovery announced that its new streaming service will launch in January and got updates on it stock rating from analysts.
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Shares of media company Discovery Inc.  (DISCA) - Get Discovery, Inc. Class A Report rose nearly 3% Thursday after the company announced its new streaming service, discovery+, will be launching in January, but analysts at MKM Partners are bearish on the move. 

Analysts at the firm downgraded the company to neutral from buy due to the expected costs associated with launching the service.

“Spending levels in promoting this service will prove significant as the scale is sought out,” said analyst Eric Handler. The firm lowered Discovery's price target to $27 from $30, according to Bloomberg.

MKM Partners expects the company's OIBDA loss to rising to $300 million from $200 million. 

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Meanwhile, analysts at Needham maintained their hold rating on the company.

Discovery shares were rising 1.4% to $28.75 per share Thursday morning. Discovery shares are down more than 12% this year, but the stock is up more than 30% over the past three months. 

The Silver Spring, Md., company's service will feature 55,000 episodes from channels in the company's portfolio, including HGTV, Food Network and Animal Planet.

"We have been working methodically the past two years to bring all of our strategic advantages to the launch of Discovery+, including distribution and advertising partnerships around the world, a world-class offering of quality brands, authentic personalities and the largest content library at launch, as well as a broad slate of exclusive programming," Chief Executive David Zaslav said in a statement.

The service will be free for up to 12 months for new and existing Verizon customers, depending on their plans. The Verizon distribution deal makes the service immediately available to 50 million customers.