Media Analyst Todd Juenger Warns It May Take Walt Disney Co (DIS) 50 Million Subscribers Just to Break-Even

Bernstein's Todd Juenger pinpoints a 9% downside for DIS shares, believing it will take a long road ahead before hitting 100 million subscribers.


Analysts are weighing in across the street on Walt Disney Co (NYSE:DIS) and its decision to buy Fox assets to close out 2017 in an over $60 billion media merger. However, one analyst is not won over by the House of Mouse’s ante into the premium content game. Why not?

Bernstein analyst Todd Juenger warns bulls not to forget that in achieving a triumph in over-the-top media services, where Disney hopes to best rivals of the likes of Netflix’s empire, brace for a steep dip in the more traditional route: the television-verse.

Noting that traditional television brings a fair amount of gains, so letting go of steam here proves to be a detriment to the entertainment giant, the analyst reiterates a Market Perform rating on DIS stock with a $100 price target, which implies a 9% downside from current levels. (To watch Juenger’s track record, click here)

Juenger explains, “For the DTC [direct-to-consumer] bulls, it’s important to remember, the more successful Disney is in driving its OTT products, the faster the decline of its (higher margin) traditional TV networks business,” boiling it down to the double-edged sword Disney faces here: “The innovator’s dilemma, personified.”

By the analyst’s calculation, Fox brings $3.5 billion to the table through content licensing to different distributors, funds that he wagers could get “shut down” for that content to gain exclusivity via Disney’s streaming channels. Moreover, the analyst forecasts Disney reaches licensing fees at comparable levels. Pair a rough $3.5 billion with any additional expenses from new tech-and-marketing spinning wheels to kick off the company’s streaming platforms and Disney could be looking at a $5 billion total, which following tax would be $4 billion, translated to $2 in EPS.

For argument’s sake, if Disney can achieve $1 billion in revenue for each 10 million subscribers it brings to the House of Mouse, under Juenger’s assumption that the service costs $8 each month, “It would take about 50 million subs to break-even.”

Juenger concludes that even if Disney can beat Netlix in the face to gain its first 100 million subscribers, this will certainly not happen overnight: “Netflix took 10 years to get 100 million subs. There is a strong argument Disney can get there faster…But it will still take many years.”

TipRanks indicates Wall Street’s majority backs Juenger’s sidelined stance on the House of Mouse, with a split between the bulls and the bears on the entertainment empire’s market opportunity. Out of 16 analysts polled in the last 3 months, 6 are bullish on Disney stock, 7 remain sidelined, and 3 are bearish on the stock. With a return potential of nearly 2%, the stock’s consensus target price stands at $112.15.

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