Walt Disney (DIS) - Get Report shares were rising 3.7% Thursday following a bullish note from Morgan Stanley's Benjamin Swinburne who believes the company's direct to consumer Disney+ service will have better subscriber growth than it previously expected.
The firm has an overweight rating on the stock and raised its price target to $160 from $135 per share.
"We forecast over 130mm global OTT subscribers by '24, broadly in line with the company's new guidance. Our willingness to underwrite these higher DTC estimates stems from 1) a faster-than-expected global launch, 2) more IP aggregated more quickly than anticipated, and 3) a plan to leverage third-party distribution," Swinburne wrote.
The firm believes that Disney can hit between 60 million and 90 million subscribers, less than 10% of addressable broadband homes. Netflix (NFLX) - Get Report currently has between 25% and 30% penetration today.
"Why we believe Disney Plus ramps faster than Netflix: 1) The OTT market is much more developed today than 12-13 years ago, and 2) Disney brings known brands and IP to the marketplace," Swinburne wrote.
Disney is launching Disney+ in order to get back market share from Netflix, but the firm's bear case for the stock says that the cost of taking on Netflix may not be worth the effort due to concerns about incremental earnings cannibalization represented by "foregone licensing to accelerating cord cutting to lower home video revenue."
Disney is a key holding in Jim Cramer's Action Alerts PLUS charitable trust.