An analyst views the launch of ESPN's DTC streaming platform as a mixed bag for The Walt Disney Company
The Disney Analyst: Macquarie analyst Tim Nollen retained a Neutral rating on Disney and lowered the price target from $94 to $91.
The Analyst Takeaways: With too many moving parts, including the impact of cord cutting, Nollen has rebuilt the model on Disney and sees a near-term downside to earnings.
"For as much change as Disney has been through in the past few years, there is even more change ahead," Nollen said.
In the new investor note, the analyst focuses mainly on sports and streaming, noting that accelerated cord-cutting could come alongside the launch of the ESPN direct-to-consumer platform in August 2025.
"We estimate industry underlying year-over-year sub declines of 8.5% currently could roughly double by 2027. ESPN DTC will likely cause this, and to offset the impact will have to add 14 million subs at a $25 ARPU by FY27, on our calculations."
The key question for the analyst is whether Disney can attract new subscribers to ESPN DTC, or if it will primarily be cord-cutters, shifting from paying affiliate fees for ESPN to the new platform.
Positives for Disney's sports segment include the new National Basketball Association rights deal and the expansion of the NCAA Football playoffs, Nollen said.
Nollen said Disney "appears to have scored a good deal" on the new NBA rights with a 73% increase in average annual price while adding international rights and streaming on the new ESPN DTC platform.
"The roll-on of the new college football playoff expansion this coming Dec 2024-Jan 2025. We estimate this brings in additional $175m of revenue in FY25 and $400m in FY26, with modest operating losses on the new $1.43bn annual contract starting FY27."
"We believe Disney is leading the way amongst media peers in transitioning to streaming, and will be successful over the long run. However, there is a lot of change and uncertainty ahead."
DIS Price Action: Disney stock is up 1% to $94.52 on Thursday, versus a 52-week trading range of $78.73 to $123.74. Disney shares are up 4% year-to-date in 2024.
