Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Bernstein raises Disney PT, expects positive impact from password-sharing crackdown

Published 02/20/2024, 08:05 AM
Updated 02/20/2024, 08:10 AM
© Reuters.  Bernstein raises Disney (DIS) PT, expects positive impact from password-sharing crackdown

Bernstein analysts reiterated an Outperform rating and slightly raised their price target on Disney (DIS) from $115 to $120 on Tuesday.

The key factor behind the broker’s bullish outlook is Disney’s recently initiated crackdown on password sharing for its streaming services, with management expecting to see the benefits in the latter half of the year.

Bernstein referenced Netflix's (NASDAQ:NFLX) successful efforts in this area as a benchmark for DIS, however, it cautioned that Disney might not see as much benefit as NFLX for two reasons.

Firstly, Disney has fewer shared accounts compared to Netflix, and secondly, the likelihood of converting shared users into new subscribers or accounts might be lower for Disney due to its streaming services, Disney+ and Hulu, being perceived as offering less value compared to Netflix.

“We estimate ~$1.2B in incremental revenue from the effort, taking Disney 6 to 8 quarters to capture the full benefit from when it starts enforcing (using Netflix’s cadence as a proxy),” analysts wrote.

Analysts predict that while the revenue boost from Disney's strategy might seem modest at approximately 6% of FY23's direct-to-consumer (DTC) revenue, the majority of this increase is expected to enhance free cash flow (FCF) significantly due to its higher contribution margin from unchanged content expenditure.

They estimate a revenue impact ranging from $1 billion to $1.5 billion, with over 70% potentially converting to FCF, potentially hastening DTC profitability within the next couple of years. Analysts remain optimistic, suggesting even greater potential earnings if conversion rates exceed expectations.

“As we’d expect Disney to have run the scenarios on the outcome of the crackdown, we assume that the incremental revenue and margins are important near-term drivers of “double-digit margin…. with a sense of urgency,” analysts said, citing Disney’s remarks from the FY24Q1 earnings call.

Latest comments

Maybe…or maybe people will just drop Disney+ all together. I personally see more pain for this company in the coming months.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.