Analyst Ups Rating on Disney After Investor Day, but Is Skeptical of SVOD Plans

BTIG Research upgraded its “sell rating” on Disney to “neutral” in a Monday note following the company’s Thursday investor day announcement of its Disney Plus streaming VOD service. Stopping short of rating it a “buy,” BTIG analyst Rich Greenfield said while Wall Street gave Disney a thumbs up Friday with a 12 percent share bump (see 1904120030), he remained “skeptical”: The wider array of popular library content at a lower price than expected "excited investors and shifted the Disney narrative (for now) away from its secularly challenged media network portfolio.” Greenfield referenced Disney management’s “ambitious” 60 million-90 million five-year subscriber target for the SVOD service, set to launch Nov. 12. Conceding the difficulty of disproving a five-year projection for a service that’s yet to launch, Greenfield called subscriber targets “overly aggressive” vs. the planned $2.4 billion original programming investment. Greenfield cited issues he believes Disney needs to address: a higher spend on original programming; the threat of Disney Plus cannibalizing home entertainment profits; the company’s streaming push possibly hurting its media network business; tech and marketing costs increasing; a challenging overseas launch; and a “confusing” multiple services model arising from separating Disney Plus from Hulu. He also called the "discount" $69 annual subscription “a mistake” and cited the challenge for ESPN Plus and Hulu to reach profitability. Disney didn't comment Monday. Moody’s called Disney’s SVOD strategies “credit positive” Monday but said they weren't expected to change its A2 credit ratings. Moody’s believes Disney is “on the correct path” for how viewers will use TV in the future “as the traditional ecosystem will continue to confront secular pressures,” particularly in North America and Australia where traditional pay TV is “most costly for the consumer" and "facing erosion.” In Moody’s view, the power over what and when people watch, on what device and how much they pay has been traditionally in the hands of production studios, network aggregators and pay-TV distributors, which have had "complete control." That power is "ceding to consumers as they now have many more information and entertainment options, can compare the value propositions of different platforms and content offerings, and are dictating their preferences with their wallets.”