By Emily Bary
Analysts question how many Disney+ subscribers are actually Hotstar customers in India, who pay much less per month
Walt Disney Co.'s streaming business continues to roar, but analysts questioned Friday whether those subscribers were bringing as much money into Disney as it needs to stave off pandemic-related ills.
RBC Capital Markets analyst Kutgun Mural upgraded the stock Friday after Disney's (DIS) fiscal fourth-quarter earnings report Thursday (link), writing that the company combines an "unabated secular growth story" in streaming with the prospect of a rebound for "premium" studio and parts assets that have been hit hard by the pandemic.
In short, the stock "offers investors unique exposure to a recovery play," Mural wrote, while bumping his rating on Disney's stock up to outperform from sector perform and boosting his price target to $170 from $124.
"Near- term results will remain noisy and headwinds from the pandemic appear far from over, though we are encouraged by operational green shoots and continued execution on cost management," Mural said in his note. Another high point was that Disney ended the September quarter with 73.7 million Disney+ streaming subscribers, up 16.2 million or almost double the consensus forecast.
Investors seemed to agree with Mural, giving Disney's beleaguered stock a 2% boost Friday. However, other analysts picked apart the growth of Disney+ and the financial gains Disney is getting from them.
Specifically, two analysts questioned how much of the company's recent Disney+ subscriber momentum stems from Hotstar, the company's streaming service in India, and the difference in subscription prices between the two.
"Hotstar has driven about 50% of Disney+ sub growth since April 4," Bernstein analyst Todd Juenger wrote. "So while the headline numbers show 24 million net adds/74 million subs over that period, we think the relevant numbers for investors are 12 million net adds/54 million subs, at an estimated $5.30 average revenue per user."
In contrast, he estimates that the Hotstar average revenue per user is only $1.88. Juenger rates the stock at market perform with a $116 price target.
MoffettNathanson's Michael Nathanson also weighed in on the Hotstar developments. "The good news is that Disney is crushing it in India (unlike Netflix) due in part to the delayed start of the cricket season," he wrote. "The somewhat more worrying data point is that Disney+ Hotstar now sources about 25% of Disney+ subs and, by our math, the majority (60%) of new subscriber additions in F4Q."
See also: Disney reorganizes media, entertainment businesses to focus on streaming (link)
In Nathanson's view, Disney+'s rapid growth is impressive, but "the driver for future growth has to be more than just adding subscribers in India." He has a neutral rating and $139 price target on the stock.
Rosenblatt's Bernie McTernan cheered the Disney+ growth with no qualifiers, writing that the company has more than 120 million streaming subscribers when taking into account other services like ESPN+, which compares with 195 million for Netflix (NFLX)
"Disney has the opportunity to overtake Netflix as the global streaming leader, and potentially shortly, with new market launches and penetration gains in existing markets for Disney+ along with the launch of Star international Disney," he wrote. "It is important to note that while Disney's streaming services carry a lower [average revenue per user] than Netflix, we expect margins to be higher long-term as the cash spend on content should be more efficient."
He has a buy rating and $155 price target on Disney's stock.
Disney shares have gained about 7% over the past month as the S&P 500 has risen 2.1%. The Dow Jones Industrial Average , of which Disney is a component, is up 2.8%.
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
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11-13-20 1604ETCopyright (c) 2020 Dow Jones & Company, Inc.