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Disney Bulls Stay Put Even After Netflix Streaming Slump

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·4 min read
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(Bloomberg) -- Even as Walt Disney Co.’s stock heads for its biggest annual drop in at least 47 years, analysts are clinging to their price targets for the media giant, betting that it can avoid the loss of streaming-video subscribers that’s crushed rival Netflix Inc.’s share price.

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Analysts expect the stock to rise by about 69% in the next year, based on the average target compiled by Bloomberg. Underpinning their optimism: Disney’s streaming unit still has room to grow and, unlike Netflix, the company has businesses such as theme parks that are set to rebound now that pandemic lockdowns have ended in the U.S. and Europe.

Collectively analysts have predicted such a big gain only one other time, when Disney plunged at the outset of the pandemic in March 2020. That drop happened so quickly that brokers had little time to adjust their models. This year, however, the stock’s 30% drop has been more gradual and brokerages have largely held on to their targets.

Now the next catalyst for the stock comes as the company reports earnings after markets close Wednesday. With Netflix shocking Wall Street last month with its first customer decline in more than a decade, investors will be keen to see if the Disney+ streaming service will face similar issues and hit a subscriber wall.

Analysts predict Disney+ had 134.4 million subscribers in its fiscal second quarter, up 3.5% from the first, with growth forecast to accelerate in the second half.

“The industry’s streaming dreams may be losing their luster, but Disney+ could shine with content and scale that outperforms, especially with a new ad-supported tier, ” Bloomberg Intelligence senior analyst Geetha Ranganathan said. The company is likely to add 40 million subscribers this year thanks to “a steady pace of new titles, local content and added markets.”

The Hollywood studio’s stock got a boost during the pandemic-induced lockdowns as Disney+ attracted millions of new customers. Now with economies opening up and travel recovering, the company is also being benefiting from its theme park business rebounding.

To be sure, analyst optimism on Disney hasn’t paid off lately. The stock has slumped 48% from March 2021 high and this year is on track for its biggest drop since at least 1975. And it may be that their price targets are so bullish now only because analysts missed the decline in the stock and are late in catching up to it.

In addition to concern about a streaming slowdown, investors are already wondering how long the good times can last for the theme parks given that recession fears are mounting.

“We think sentiment on both is overdone,” Steven Cahall, a Wells Fargo & Co. analyst who sees the stock gaining 69% in the next year, said in a note.

Disney’s diversified business has helped the stock avoid the violent selloffs that have rocked former stay-at-home favorites like Netflix, Peloton Interactive Inc. and Zoom Video Communications Inc., which have fallen between 75% and 92% from their peaks.

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There’s something about May: The Nasdaq 100 Index has had a rough start to the month, with 36 stocks hitting 52-week lows in the first seven sessions, and there are still more than two weeks to go. Last year was similar, with more than two dozen 52-week lows in May.

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(Updates share price moves throughout.)

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