Analyst are weighing in on the Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) and entertainment giant Walt Disney Co. (NYSE:DIS). The analysts reflect on a successful earnings report from Walt Disney and Alibaba’s acquisition of the rest of Chinese video site Youku Tudou.
Alibaba Group Holding Ltd
Alibaba Group announced Friday that it had reached a deal to purchase Youku Tudou Inc (ADR) (NYSE:YOKU) in a transaction valued at $4.8 billion. This move comes from founder Jack Ma’s desire to tap into the rapidly growing Chinese video-streaming market. As of June 2015, there was a reported 461 million people in China who streamed video content, with 354 million using mobile devices as a means of access. Youku is the equivalent of YouTube in China and second in the world for video streaming, behind Google. Subject to Youku shareholder approval, this deal will initiate in Q1 of next year.
Last month, Alibaba upped its bid to $27.60 per share of Youku, up 1% from its previous offer of $26.60. With ownership and control of Youku, Alibaba intends to deliver US films and TV series to the company’s Chinese audience through the platform. In this deal, Alibaba can double its traffic, as Youku had 286 million visitors in August alone, compared to the same number of Alibaba visitors. Amid stiff competition, rivals are heavily investing in the streaming of movies, TV, and original programming to gain market share. Baidu, one of Youku’s main competitors, struck a deal with Universal for exclusive content. Netflix has also expressed interest in developing operations in China through a local provider.
Overall, analysts are bullish on this deal. Rob Sanderson of MKM Partners maintains a Buy rating on the stock. He believes this move is just what Alibaba needs to stay competitive and cater to the needs of its users. He states, “The move into digital media makes a lot of sense. The rise of Internet video is really undeniable around the world, so I think it’s a strategy that could produce quite a bit of leverage given the size of their communities.”
According to TipRanks, of the 25 analysts who have rated Alibaba over the last 3 months, 22 rated it as Buy, while 3 remained on the sidelines. The average 12 month price target for Alibaba is $93.77, marking a 12.15% upside from where the stock last closed.
Walt Disney Co
Walt Disney announced its fourth-quarter earnings results on Thursday, Nov 5. The company reported earnings of $1.20 per share, beating the analyst consensus estimate of $1.14. Following the announcement, analysts from Cowen and BMO Capital weighed in on the stock.
Doug Creutz of Cowen took a neutral stance on Walt Disney, reiterating a Market Perform rating and a price target of $89. He attributed his rating to the fact that bottom line results were above consensus expectations but top line results fell short of estimates. Creutz expects Disney’s upcoming movie, Star Wars: The Force Awakens, to be a hit in theaters and believes that studio earnings and investor interest in Disney shares may peak with the launch of the film. However, he expresses concern over the increasing competition in the blockbuster film space, beginning next year, which might affect the film’s overall performance.
Analyst Doug Creutz has a success rate of 58% with an average return per recommendation of 14.3%.
On the same day, Daniel Salmon downgraded the stock to a Market Perform rating. This downgrade, he states, is in the absence of any positive commentary from Disney regarding certain key elements. Although Disney is exploring options for alternative methods to deliver its content to consumers, such as launching the Disney Life SVOD product in the U.K. and signing on to Sony’s PlayStation Vue skinny bundle, Salmon believes many options like a direct-to-consumer product for ESPN remain long-term, partially due to contractual obligations with traditional distributors. Salmon’s second concern stems from the company’s 2016 capital expenditure, which is expected to be $5.1 billion, much above his prior $3.6 billion estimate, which he raised from $3.2 billion last quarter. While he views this as money well spent in the long term, it does affect the near term free cash flow estimates.
According to Salmon, a few factors can determine a constructive outlook for the stock. One, if multichannel video programming distributor (MVPD) declines are offset by skinny bundle subscribers from Vue, Dish’s Sling and a perhaps an Apple product launching soon. Two, if there is more clarity into the early visitor demand for Shanghai Disneyland as the spring 2016 opening approaches. And finally, if the studio’s strong film slate outperforms with huge expectations for the Star Wars release.
Daniel Salmon has an overall success rate of 69% recommending stocks and an average return of 8.7% per recommendation. Overall, out of the 17 analysts polled by TipRanks, 11 are bullish on the stock while 6 remain on the sidelines. The average 12-month price target for Disney is $118.44, marking a 2.39% upside over current levels.