Fiscal Q1 earnings were not good, but Bob Iger’s plan for Disney inspired investment bank UBS to title its Disney post-earnings report “A Whole New World” — and boy, is it.
In a Thursday morning note to clients, UBS analysts applauded Iger for refocusing the streaming business — and for refocusing on profitability. They were not alone.
“Bob Iger returned by delivering the goods,” Wells Fargo’s own research note reads. Those goods include cutting costs, getting out from under predecessor Bob Chapek’s overly optimistic Disney+ subscriber guidance, and even promising a modest dividend for this year. Its equity analysts also lauded Iger for “curating the content strategy (i.e. backing off of general entertainment/local),” they wrote, and “ring-fencing ESPN” as a new standalone segment that includes ESPN+.
“While the future isn’t 100% certain,” it said, “the strategy is: profit.”
The previous regime’s streaming strategy was, ah, not so good, said media analysts at Moffett Nathanson. “Disney’s streaming strategy was being held hostage” by Chapek’s ambitious subscriber targets, they wrote to investors. The Chapek administration’s goals, like having 230-260 million subs by the end of fiscal 2024, was “unattainable,” they continued. But that Disney “lacked the honesty and courage to walk them back.”
Not this one. What Iger’s Disney cares about for the end of 2024 is Disney+ reaching profitability. Sure, one could theoretically achieve that with massive scale, like Chapek wanted, or you could instead make more bread through your bread-and-butter subscribers. Moffett Nathanson believes Disney+ should cater to super fans — and charge them more.
Now, it’s all about the ARPUs (average revenue per user) and margins, baby, per Wells Fargo and Moffett Nathanson. Both pointed out such an approach could also mean exiting certain markets where streaming is not very profitable, like India. And why not? Disney already lost subscribers there after losing IPL cricket rights. Let Paramount Global have ’em — and the tiny subscription fees.
“Turning Red”
©Walt Disney Co./Courtesy Everett Collection
UBS analysts have Disney stock (DIS) as a “buy” with a 12-month target price of $122. They break the valuation down this way: Disney’s “legacy” businesses, including linear media, film, parks, and consumer products, are worth $82 per share; the streaming business is worth $40.
They’re on the low end. Moffett Nathanson this morning upped its target price by $10 to $130. Wells Fargo raised its own price target from $125 to $141 per share.
DIS shares jumped a few percentage points after Wednesday’s earnings and are currently trading around $115 apiece.
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