Ahead of Disney’s (DIS) earnings release earlier this week, investor sentiment was strong, with shares up 30% for the year. But Disney’s honeymoon with Wall Street hit a small bump Wednesday, when the entertainment giant reported disappointing fiscal Q3 numbers.
Specifically, the company reported revenue of $20.24 billion, ~$1 billion less than the $21.48 billion analysts had predicted. EPS also came in well below consensus at $1.35 vs. $1.75.
In reaction, 5-star Rosenblatt analyst Mark Zgutowicz slightly lowered his price target to $170 (from $175), and reiterated a Buy rating on DIS stock. While the June quarter may be disappointing, Zgutowicz still says Disney is his “top pick in the media space.” (To watch Zgutowicz’s track record, click here)
Zgutowicz continues to see Disney as “a best in class content asset and should be able to make the successful pivot away from the shrinking bundle and towards streaming.”
On the point of streaming, the company is beginning to prove itself as a streaming powerhouse, with Disney+, Hulu and ESPN+. Disney just announced that the three would come in a packaged deal, for $12.99 a month, an intriguing offer for customers who enjoy both live TV and want a large library of shows and movies. Zgutowicz believes “this bundle pricing is attractive and should be a tailwind to domestic streaming subscriber growth and hopefully international longer-term.” A major part of the bundle is to bring move viewers to Hulu in order to boost ad revenue.
Zgutowicz says there is strong “upside from making the transition from the shrinking bundle towards direct-to-consumer.” He highlights high spending on video entertainment, with $100 billion of the $115 billion total going to MVPD services, which “Disney is currently a key beneficiary” of. But MVPD services and cable expected to continue decreasing as cord-cutting increases, with more and more people opting for streaming.
And that’s where Disney’s new efforts come in. The analyst says, “with strong brands and IP, we believe Disney is one of the few media companies that will be able to successfully navigate” the transition. He expects Disney+ to add 30M domestic subscribers in the next four years, but will still make it small compared to Netflix.
All in all, even with disappointing earnings, most analysts are still bullish on Disney, as it is one of the largest and most storied companies in the world. TipRanks analysis of 14 analyst ratings shows a consensus Moderate Buy rating, with 11 analysts suggesting Buy, while three recommending Hold. The average price target among these analysts stands at $156.93, which implies nearly 13% upside from current levels.(See DIS’s price targets and analyst ratings on TipRanks)