Disney+’s Strong Start: What Wall Street’s Saying

One analyst called the debut of Disney+ ‘one of the greatest product launches of all time.’
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Disney  (DIS) - Get Report beat earnings and revenue estimates for the December quarter, with most of the attention focused on the success of streaming service Disney+, which has already racked up 28.6 million subscribers in the U.S. That puts its total at about half of Netflix’s  (NFLX) - Get Report subscriber base in the U.S., even though Disney+ only launched in November.

Disney shares were down 1.5% to $142.59 in morning trading on Wednesday.

Here’s what analysts had to say about the results:

Moffett Nathanson (Buy, Price Target Unchanged at $165)

"Management team must be given credit for pulling off one of the greatest product launches of all time. The incredible success of Disney+ with 28.6 million paid subscribers (mostly domestic) in less than 90 days – almost half of where Netflix is today – speaks to the unrivaled quality of their content, the strength of their brands and the magic of Disney’s marketing machine. ESPN+ and Hulu also surprised to the upside, with 1.9 million incremental Hulu/Hulu+Live TV subs and 3.2 million ESPN+ subscribers added in the fiscal first quarter. At quarter’s end, these three businesses are on a run rate to generate annual subscription and advertising revenue of at least $9.6 billion."

-Michael Nathanson

Goldman Sachs (Buy, Price Target Increased From $148 To $159)

"As of 2/3/20, Disney+ subscribers totaled 28.6 million, putting to rest the question of whether churn would spike following the end of The Mandalorian season one; the final episode debuted on 12/27/19. Disney+ consumption was very broad-based, and is not just limited to originals series or Disney library (e.g., short-form, musicals, recent theatrical films, library Disney Channel series). 65% of subs who watched The Mandalorian watched as least 10 other pieces of content. The increase to our price target primarily reflects our increased subscriber estimates for Disney+."

-Drew Borst

BMO (Outperform, Price Target Increased From $165 to $175)

Disney+ subs beat our estimates handily (and only 20% came from VZ, vs our 35% estimate, a positive surprise disclosure) and the product will launch in India on 3/29. ESPN+ subs were double our estimate and Hulu will begin expanding internationally in 2021. It all adds up to more DTC value. Meanwhile, our conservatism on Media Nets was misplaced as 2H19's MVPD renewal cycle seems to have played out better than feared. We remain Outperform: though 2020's catalyst path is less diverse, we expect DTC momentum to continue.

-Daniel Salmon

Deutsche Bank (Hold, Price Target Unchanged at $139)

At the segment level, we see the stories as: (1) Continued ratings pressure for ESPN and ABC driving negative ad revenue trends in F1Q, while affiliate renewals are driving growth, partially offset by subscriber declines; (2) Strong domestic theme parks (Star Wars helping) and consumer products growth with offsetting pressure going forward from closing Shanghai and Hong Kong in response to the Coronavirus and the preexisting pressure in Hong Kong; (3) A standout Studio quarter with tough theatrical comps for the remainder of F2020; (4) A bright outlook for DTCI growth given the early success of Disney+, with additional disclosure of Subscribers and ARPU for all three services, and international expansion ahead.

-Bryan Craft and Benjamin Soff

JPMorgan (Overweight, Price Target Increased from $160 to $170)

We are impressed with Disney’s ability to balance growth in its traditional businesses with investment in an incredibly successful streaming service, with Disney+ reaching 26.5m subscribers in the first quarter of launch. Disney’s early success in transitioning its business to a digital platform will likely award the stock a higher multiple as it increases conviction in its longer-term success and path to profitability. We see ongoing subscriber updates on quarterly reports to be uneven but ultimately a positive driver to shares.

-Alexia S. Quadrani

Morgan Stanley (Overweight, Price Target Unchanged at $170)

After two and half months in the US and a handful of int'l markets, Disney Plus is run-rating at nearly $2bn in revenue and should surpass the $2.8bn exit-rate we estimated at FYE20. While admittedly early, this reinforces our view EPS can approximately double from FY20 to FY24.

-Benjamin Swinburne

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