Disney Sets Double-Digit Margin Target for Streaming Business, Stocks Soar
In a move to tackle a critical goal, Walt Disney Co. has set a double-digit margin target for its streaming business. Despite currently operating at a loss, the company’s streaming division has made significant financial progress, prompting Chief Financial Officer Hugh Johnston to express a sense of urgency in achieving this target. The announcement has resonated with investors, leading to a surge in Disney’s stock.
Disney’s focus on becoming the second-largest streaming player in terms of profits and scale, behind Netflix Inc., has been well-received by analysts. MoffettNathanson analyst Michael Nathanson describes Johnston’s comment as one of the most impactful statements during the call. He believes that Disney is now more determined than ever to build a large and profitable streaming business, a feat that no other company has convincingly achieved.
Nathanson, who has a buy rating and a $120 target price on Disney’s stock, sees the company making progress towards its goal. He notes that there appears to be a newfound urgency to capitalize on the streaming opportunity. Similarly, Bernstein analyst Laurent Yoon acknowledges the positive points in Disney’s fiscal first-quarter report and call, but emphasizes that the metric that truly matters is direct-to-consumer profitability.
The latest quarter saw streaming losses improve from $420 million to $138 million, leading Wall Street to be optimistic about Disney’s ability to reach its streaming profitability target sooner than expected. While management still expects to achieve this goal in the fiscal fourth quarter, Yoon questions its feasibility. He suggests that the new goalpost for investors is the fiscal third quarter, with some even anticipating that Disney may achieve the milestone in the ongoing fiscal second quarter.
Yoon believes that Disney has turned a corner and is on track for success. Although there are still battles to be fought, such as the ongoing proxy fight with Trian Partners, Yoon believes that the days of fixing are behind Disney. He has increased his price target on the stock to $115 from $103, maintaining an outperform rating.
Vijay Jayant of Evercore ISI finds Disney’s streaming-margin target reassuring and praises the company’s overall trajectory. He believes that despite facing challenges in recent years, Disney is now on a credible path to return as an earnings compounder with sustainable robust free cash flow. Jayant has raised his price target to $115 from $100, while maintaining an outperform rating.
Laura Martin of Needham also joins the bullish camp, upgrading Disney shares to buy from hold. She establishes a $120 target price and titles her note to clients “The Magic’s Back.” Martin commends Disney’s growing focus on cost control and highlights Johnston’s statement about being on track to meet or exceed $7.5 billion in cost savings. She interprets the use of the word “exceed” as a sign that this outcome is now more likely.
Overall, Disney’s announcement of a double-digit margin target for its streaming business has generated excitement among investors. With improved streaming losses and a renewed focus on profitability, the company appears to be on a promising trajectory. Analysts are optimistic about Disney’s ability to achieve its goals and have raised their price targets accordingly. As Disney continues to navigate the streaming landscape, it seems that the magic is indeed back for the entertainment giant.
