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Disney stock downgraded at KeyBanc on 'meaningful uncertainty'

The "Happiest Place on Earth" may not be so happy at the moment.

KeyBanc Capital Markets analyst Brandon Nispel downgraded Disney stock (DIS) to Sector Weight from Overweight on Thursday, citing "meaningful uncertainty" as the 2024 financial setup "feels a lot like the 2023 setup."

Nispel called out five areas of concern, which include stalling direct-to-consumer (DTC) subscriber growth, a failure to differentiate DTC churn, sagging Disney content sales, a "materially harder" reality for moving ESPN to streaming, along with fears that domestic park expectations appear too high in the US.

"We prefer to step aside, acknowledging meaningful uncertainty, and wait for further catalysts, as buying the dip has been a losing trade," he wrote in his note to clients, adding he sees "more negative than positive [near-term] catalysts."

Disney shares were muted in market trading following the downgrade.

The parks business, which saw operating income hit $2.17 billion in Disney's latest quarter, has consistently been a bright spot for Disney, although Nispel said theme park attendance data remained weak for both April and May.

"Disneyland growth due to its 100th anniversary celebration is more than offset by [Walt Disney World's] contraction from comparisons against its 50th anniversary celebration. We worry the 'tough comps' are not properly reflected in consensus," the analyst wrote.

He added the company's new labor contract in Florida, coupled with the accelerated depreciation of the Starcruiser hotel, will further pressure margins.

FILE - A statue of Walt Disney and Micky Mouse stands in front of the Cinderella Castle at the Magic Kingdom at Walt Disney World in Lake Buena Vista, Fla. (AP Photo/John Raoux, File)
FILE - A statue of Walt Disney and Micky Mouse stands in front of the Cinderella Castle at the Magic Kingdom at Walt Disney World in Lake Buena Vista, Fla. (AP Photo/John Raoux, File) (ASSOCIATED PRESS)

On the streaming side, KeyBanc expects further losses from Disney+ and Hulu as growth tapers off amid escalating competition.

Disney stock saw its biggest decline in six months after the media giant reported Disney+ shed 4 million subscribers in its fiscal second quarter following recent price hikes.

ESPN remains another murky area for the company. Last month, The Wall Street Journal reported Disney is currently laying the groundwork to transform ESPN into a fully over-the-top streaming service — something Disney CEO Bob Iger has said will happen.

"At this point, [ESPN+] is what I call a flanker business or brand to the main ESPN brand," Iger said in March. "Down the road, at some point, I think it's inevitable...[ESPN] will become a direct-to-consumer business."

But Nispel noted recent Keybanc survey data shows a "low willingness to pay."

"Who's going to pay $30+/month for ESPN? Not many," the analyst wrote. "From our survey work, we found consumer interest in sports is relatively high in linear, though willingness to pay in streaming is low: we found >25% of subscribers would not be willing to pay for a pure sports streaming service, 46% of subscribers would be willing to pay <$10/month, and 26% would pay >$20/month."

Alexandra is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at

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