Wall Street Warming on Disney; Cooling on Netflix

The Walt Disney Co. (DIS) is firing on all cylinders, riding the re-opening of the global economy and the successful launch of Disney+, which has changed the game in the video streaming market.

Strong Q3 Performance

On Thursday afternoon, the entertainment giant reported strong financial results that beat Wall Street estimates both on the top and the bottom line, as visitors returned to its theme parks, and Disney+ continued to gain subscribers. (See Disney stock charts on TipRanks)

Wall Street liked what it saw, sending the company's shares sharply higher in after-hours trading, though the gains moderated during the regular Friday session. 

EPS came in at 80 cents, up from 0.08 cents in the prior quarter and well above the 50 cents analysts had expected.

Revenues reached $17.02 billion, surpassing analysts' estimates of $16.76 billion.

Management cheered the results. "We ended the third quarter in a strong position and are pleased with the Company's trajectory as we grow our businesses amidst the ongoing challenges of the pandemic," said Bob Chapek, Chief Executive Officer, The Walt Disney Company. "We continue to introduce exciting new experiences at our parks and resorts worldwide, along with new guest-centric services, and our direct-to-consumer business is performing very well, with a total of nearly 174 million subscriptions across Disney+, ESPN+ and Hulu at the end of the quarter, and a host of new content coming to the platforms."

The analyst community is on the same page as management. The 18 analysts following the stock see it trading at an average price of $212.13 within 12 months, with a high forecast of $227.00 and a low forecast of $185.00. The average Disney price target represents a 17.15% change from the last price of $181.08.

"The quarter is bullish from the perspective of both near-term post-vaccine recovery and long-term value creation from the Disney brand and content creation-flywheel," says Quo Vadis Capital President John Zolidis, who has been following the stock closely for a long time.

He thinks that the analyst community is too conservative with its estimates of Disney's future. "The key takeaway from results, in our opinion, is that analysts are underestimating the rate of growth and, more importantly, the profitability of Disney's new, hybrid digital and analog model," he adds.

Disney's New Content Distribution Strategy is Working

Zolidis's comment refers to Disney's strategy to leverage its content-producing capabilities to address the different segments of the video streaming market. It launched this strategy in December 2020.

That was a significant shift for the original content powerhouse, which initially thought of video streaming as a disruptor to its core businesses. That's why it left the entire market to Netflix (NFLX), which turned into the "king" of streaming entertainment services.

The rest is history. Disney's top and bottom lines stagnated as Netflix grew by leaps and bounds, which can explain Disney's sluggish performance on Wall Street. 

Fortunately for Disney's investors, its new strategy has been working. In Q3, Disney reached 116 million paid subscribers, ahead of 114.5 million Wall Street had expected. That's one of the key drivers behind the company’s blowout quarter.

Wall Street has begun to take notice. For example, Disney's shares have gained 39.97% in the last twelve months, compared to 6.96% for Netflix.

Summary and Conclusions

Disney is coming back. Visitors are returning to its resorts and theme parks while it adds new subscribers to its platforms. Meanwhile, Wall Street likes what it sees, warming up on Disney's shares as it cools off on Netflix.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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