Walt Disney (DIS) shares moved lower Thursday after analysts at KeyBanc Capital Markets lowered their rating on the media and entertainment group, citing weakness in its domestic theme parks business and ongoing challenges in cable and streaming.
KeyBanc Capital Markets analyst Brandon Nispel cut his rating on Disney to 'sector weight' from 'overweight' in a client note published Thursday, adding that the "2024 financial set up feels a lot like 2023", with stalled subscriber growth, elevated expectations for theme park attendance and a longer path to profits for Disney's content sales segment.
"Our domestic theme parks attendance data is weak for April and May; Disneyland growth due to its 100th anniversary celebration is more than offset by Walt Disney World contraction from comparisons against its 50th anniversary celebration," Nispel said. "We worry the 'tough comps' are not properly reflected in consensus."
Disney+ and Hulu subscriber growth, meanwhile, has stalled according to Nispel, with net losses for both offerings expected over the current quarter and no near-term profit bump from the early stage introduction of an advertising tier.
Disney+ paid subscribers fell by 4 million to 157.8 million over the three months ending in March, thanks in part to the loss of televised cricket rights in India.
"While Disney has started to drive pricing, we have yet to see services separate from peers from a churn standpoint, though it arguably has had a bundling advantage," Nispel said. "Disney, like many peers, is likely to need to monetize existing subscribers better through price increases, while establishing a lower-priced subscription advertising tier to retain subscribers."
Disney shares were marked 1.2% lower in early Thursday trading to change hands at $87.80 each, a move that would trim the stock's year-to-date gain to just 1.6%, compared to a 14% advance for the S&P 500 benchmark.
Last month, Disney posted second quarter earnings that were largely in-line with Street forecasts, but noted that revenues from its India streaming subscribers were sharply lower, suggesting the loss-leading division will continue see red over the coming months.
The stock was further hit by comments from CFO Christine McCarthy, who said weakness in the streaming division would "linger" into the three months ending in June.
Disney said adjusted diluted earnings for the three months ending in March, the group's fiscal second quarter, came in at 93 cents per share, down 14% from the same period last year and largely in-line with the Street forecast.
Group revenues, Disney said, rose 7.5% to $21.82 billion, narrowly topping Street forecasts of $21.79 billion. Parks and Experiences, meanwhile, saw revenues rise 17% from last year to $7.78 billion, thanks in part to re-opened sites in Hong Kong and Shanghai.
July 4th Sale! Get investment guidance from trusted portfolio managers without the management fees. Sign up for Action Alerts PLUS now for 75% off.
