Investor Alert

The Ratings Game

Aug. 14, 2021, 12:00 p.m. EDT

Disney+ has analysts bullish about near-term growth and shares jump 5%

By Jon Swartz

The House of Mouse roared Thursday, when Walt Disney Co. announced its best financial results since the start of the pandemic, hurtling its shares up 5% in after-hours trading Thursday and the stock was still up Friday.

Analysts are lauding across-the-board earnings and revenue that topped out at 50 cents a share ($918 million in net income) and $17 billion in revenue.

Disney’s (NYS:DIS) streaming service Disney+ exceeded forecasts to reach 116 million subscribers, while the television networks such as ESPN and ABC reported sales of $6.96 billion, and Disney’s theme parks and product sales segment reported $4.34 billion in revenue as it slowly reopened in the U.S. and abroad in the wake of the pandemic.

“We believe that Disney’s multiple is driven by momentum in [direct-to-consumer] – most notably Disney+ subscribers,” Michael Nathanson of Moffett Nathanson said in a note Friday. He forecasts Disney’s DTC revenue will nearly triple from $16.5 billion in fiscal 2021 to $46.6 billion in fiscal 2026 on “massive ramping in Disney+ subscribers and pricing power in high-RPU markets.”

Read more: Disney produces best earnings and sales since before pandemic, stock pops 5% higher

What Needham & Company analyst Laura Martin liked most about the quarter was the performance of Disney’s direct-to-consumer business (DTC), the cornerstone of Disney CEO Bob Chapek’s corporate strategy. Martin, who maintained a hold on the company’s stock in an Aug. 13 note, pointed to $4.26 billion in revenue for DTC, up 57% year-over-year, and 174 million total subscribers.

In raising its price target to $210 and maintaining an outperform rating on Disney, Macquaire Capital analyst Tim Nollen highlighted the addition of 8.7 million subscriptions to 116 million amid competition from Netflix Inc. (NAS:NFLX) , Apple Inc. (NAS:AAPL) , AT&T Inc. (NYS:T) , Comcast Corp. (NAS:CMCSA) , and Amazon.com Inc. (NAS:AMZN) .

“Disney+ is off to a very strong start, which we believe is the key variable governing stock performance,” Cowen Inc. analyst Doug Creutz said in an Aug. 13 note that maintained a perform rating and price target of $147.

“We still have reservations about the long-term strategy, particularly the wisdom of the Fox acquisition, and we think the company will eventually recover from current pandemic-related macro difficulties,” Creutz continued. “However, valuation appears to fully discount both an economic recovery and accelerated profit progress at the company’s DTC segment.”

Link to MarketWatch's Slice.