Wolfe Research analyst worries about subscriber trends as Disney pulls back on promotional spending and raises prices again on the ad tier
Walt Disney Co. continues to navigate a tough media environment, and that has one analyst worried about the stock’s ability to advance in the interim.
“With Disney+ subscriber forecasts looking risky, the linear TV outlook deteriorating, $2.5B of hard cost reductions now in consensus, and content amortization set to catch-up to cash spend in the coming years,” Wolfe Research analyst Peter Supino said he was downgrading Disney shares DIS, -0.35% to peer perform from outperform Friday.
The rating cut comes in the wake of Disney’s Wednesday afternoon earnings report, which showed a decline in Disney+ streaming subscribers and a continuation of the company’s more rational approach to streaming spending. Disney plans to produce less content going forward and will look to put Hulu content onto the Disney+ platform for consumers who opt to pay for both, a move the company thinks will appeal to both subscribers and advertisers.
Supino has concerns about Disney’s ability to meet expectations for an acceleration in Disney+ subscriber growth in the September quarter.
“Content reached ‘steady state’ in [the second half of 2022], yet mgmt continues to pin subscriber growth hopes on content release timing,” he wrote.
Additionally, he worries about Disney’s ability to generate gross subscriber additions as it pulls back on promotional spending. Net additions for the ad-supported tier “will also be impacted by another price increase this year… despite guidance for a subscriber net add acceleration,” Supino continued.
Then there’s the economic backdrop. “Today’s late cycle consumer environment and deteriorating DTC [direct-to-consumer] and linear revenue growth leave us more concerned about forecasting risk and time decay,” he wrote.
Disney teased that it will add Hulu content to Disney+ later this year, but Supino questions why management telegraphed the move at this point in time, since Disney has the option to buy out Comcast Corp.’s CMCSA, -0.40% one-third stake in the Hulu service as early as January 2024.
“Why integrate a Hulu tile into Disney+, thereby increasing Hulu’s value, prior to completing negotiations with Comcast?” Supino asked.
Disney shares were near flat in Friday morning trading after recording a 8.7% decline in Thursday’s session.