Walt Disney Co. has its challenges — but it’s also “the only credible” challenger to Netflix Inc., and that’s one reason Bernstein recommends buying the stock.
Bernstein analyst Laurent Yoon initiated coverage of Disney shares
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with an outperform rating late Thursday, writing that while he has a bearish view on the company’s linear-media business, he’s optimistic about Disney’s potential in streaming, especially as the company looks to buy the remaining portion of Hulu that it doesn’t already own.
Yoon expects Disney to be more forthcoming about Hulu’s margins and other financials in time, but he said the company likely doesn’t want to “play up” the potential too much in the moment or else it risks having to pay too much for the one-third share of Hulu currently owned by Comcast Corp.
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See also: Disney faces mounting challenges, but its Hulu ‘overhang’ could resolve sooner than expected
He sees ample synergy potential for Disney if the company were to fully own Hulu, alongside its Disney+ and ESPN offerings.
“A Disney+ and Hulu bundle will be a strong competitor to Netflix with a complete suite of offering of both shows (Hulu) and movies (Disney+),” he wrote. Though “it’s hard to gauge the combined [average revenue per user] given the precise overlap between the two products is not disclosed,” Yoon thinks Disney will get close to Netflix
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on the metric, and he also deems Disney+ to be “under-priced.”
Read: How to maximize your streaming dollar in October 2023, and why Netflix is all you really need
Additionally, he’s upbeat about the international opportunities for Hulu. “With some back of envelope math, on the conservative end, since Hulu has a similar level of foreign content as [Warner Bros Discovery
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], the incremental revenue could be $2B,” Yoon said, though the “ceiling” could be neared to $9 billion depending on bundling strategies and content investment.
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“Disney has the most promising [direct-to-consumer] business amongst its traditional media peers,” Yoon wrote in his note to clients, while setting a $103 target price on the stock.
In his view, it will take “some time” before Disney is able to strike an optimal balance on pricing and content strategies, but once Disney succeeds there, “its margin should not be an order of magnitude less than Netflix’s as the current trading multiple suggests.”
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