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Disney: Look Beyond the Near-Term Noise, Says J.P. Morgan

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Disney (DIS) stock has seriously underperformed over the past year, with the downturn accelerating recently. Since reporting FQ4 earnings on November 10, shares have shed 15% of their value.

J.P. Morgan’s Alexia Quadrani puts the weakness down to “tepid” investor confidence in the company’s ability to make good on its F24 DTC (direct-to-consumer) subscriber targets, and due to concerns around the Omicron’s impact on parts of the legacy business.

“Admittedly,” says the analyst, “We see fewer catalysts in H1’22 on the DTC business due to market launches weighted to the back half of the year in Eastern Europe, the Middle East, and South Africa.”

However, in the year’s latter half, armed with a steady stream of “content drops,” in the shape of one flagship title a week in F4Q22, side by side with more local-language content, that should all change. In fact, in F22 – mainly in FQ3/FQ4 - Disney+ will make its debut in 50 new markets, and by F23 will be present in 160 countries. “We expect that subscriber additions will then be more closely correlated to the addition of new content vs. new market launches once a steady state in releases is reached,” Quadrani opined.

A look at Disney+'s monthly users in FQ1 will give us an idea of just how fast the platform has been growing. Unique Visitors (UVs) dropped by 1% sequentially from 288.7 million to 285.3 million although the figure amounts to a 7.5% uptick from the same period last year.

In any case, Quadrani tells investors to look beyond the near-term noise regarding the legacy business headwinds and anticipated lighter 1H’22 Disney+ subscriber additions. By 2H22 and F23, sub growth “re-acceleration” should be in the cards and the Parks should be on course for a full recovery, “ramping back to pre-COVID margin levels in F23.”

More than that, with the “best IP in the industry,” and yet to have reaped the benefit of the “flywheel of consumer interactions from DTC/parks/theatrical releases,” Quadrani expects shares of her top Media pick to push higher over the long-term.

As such, the analyst rates DIS stock an Overweight (i.e. Buy) while his $220 price target implies shares will climb by 49% over the one-year timeframe. (To watch Quadrani’s track record, click here)

Looking at the consensus breakdown, the majority of analysts are bullish on Disney's prospects, too; 15 Buys and 7 Holds add up to a Moderate Buy consensus rating. The $195.35 average price target suggests upside of ~32% in the year ahead. (See Disney stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.