“Approaching calendar year 2024, we think the longer-term direct-to-consumer earnings/margins story begins to emerge as the key reason to own Disney in duration,' writes analyst Steven Cahall.
Summarizing bears’ arguments, Cahall mentioned the conglomerate’s recent lack of big content successes. “Disney is not a hit factory of late, and content improvement takes a lot of time. Disney’s box office and Disney+ subs will suffer, especially amidst price increases,” he explained investors’ worries. “This creates further downside to direct-to-consumer estimates with our bear case below Street on subs and DTC operating income.
Other causes for optimism are the “exceptional” Disney Parks, Experiences and Products business, the planned sale of linear TV assets, and a predicted DTC break-even by the third quarter of fiscal year 2024 along with what Cahall estimates to be $1 billion in Hulu cost synergies after Comcast puts its 33 percent stake in the streamer to Disney.
The analyst expects an early fiscal year 2025 ESPN streaming launch and “trough ESPN EBITDA of around $1 billion in fiscal years 2024-2026, down from about $4 billion in fiscal year 2021.”
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