Disney currently does not have the number one spot in terms of streaming. However, one analyst thinks that at some point it could dethrone Netflix for the top spot. More than that, it could be the only company that has a decent chance of doing this. This becomes because it could soon be taking complete control of Hulu. Because of these factors, Bernstein Analyst Laurent Yoon believes that Disney is the “only credible challenger to Netflix.”
Bernstein gave Disney’s stock a target price of $103. This would indicate a 29 percent growth for the company’s stock. “The only credible challenger to Netflix. Oh, plus Parks,” Yoon wrote on Disney. “Despite our bearish view on linear versus consensus, we are bullish on Disney’s potential to transition to DTC at scale once combined with Hulu.” He continued that he believes that the growth of streaming will outpace the decline of linear. Disney’s linear revenue is predicted to be passed by streaming revenue in 2024 with “Disney becoming the undisputed #2 SVOD.” In terms of Hulu, Yoon said, “Disney has more to gain with full control of the asset, and (a) favorable resolution of the deal (with Comcast) will likely lift a modest overhang on the stock.”
At the end of the day, Bernstein and Yoon believe that there is an undeniable decline of linear TV and transition to streaming. Yoon concluded that “Future growth and profitability are about outpacing linear decline with direct-to-consumer (DTC) growth and having scale for profitability.” This is one of the reasons that Yoon is optimistic about Disney’s future. Yoon also argued that “industry structure is unsustainable, and consolidation overhang will persist.” With possible buyers and sellers, “interest rates and depressed valuations make deals more challenging near-term — but never say never,” Yoon noted. He also stated that de-levering alone is “insufficient,” and that “It must be complemented with underlying fundamentals to drive cash flow growth.” Finally, he also said that cable growth is over. “Pricing and packaging drive value but once lofty pricing assumptions are challenged by intensifying competition. However, there’s ample cash flow to keep the stock afloat and interesting.”
With these four variables in mind, Yoon believes that Disney is in a prime position for growth in the future and to take over the top streamer spot from Netflix. Netflix continues to be in a good spot but sees its stock being forecast by Bernstein going down by 1%. Yoon sees this as leading investors to ask the question “Good company. Good stock?” With this comes and opening for Disney. “Netflix is clearly the undisputed SVOD leader and firing on all cylinders driving sub and (average revenue per member) ARM growth and expanding margins,” he wrote. “We are below consensus on subscriber growth, especially in international markets, but offset by a more positive view on ARM growth, based not only on price hikes but also AVOD growth. We are also below on EBITDA margins versus consensus.” Yoon’s final takeaway: “The good news is that Netflix now closely resembles a utility in many markets, giving it status as a long, durable service. The challenge of being labeled a utility, of course, is how a maturing company continues finding growth. We see plenty of opportunities, though conclude that expectations are likely ahead of the reality.”
Only time will tell who ends up in the top spot in terms of streamers. Netflix continues to hold a solid first position. Disney has lots of potential but also lots of challenges as it continues to change its business model after the return of CEO Bob Iger followed by a restructure under his leadership once again. Who do you think will end up on top in terms of the streaming wars? Will Disney overtake Netflix? Share your thoughts and opinions in the comments below!
