The share price gains are surprising considering more than 50% year over year revenue drop from its parks and studio entertainment business in the latest quarter. It appears that the investor’s sentiments have shifted towards its streaming and TV business. The stronger than expected Disney plus subscriber growth added to investor’s sentiments.
Streaming and media business supporting gains
The investors are focusing on the bright spot of Disney’s direct-to-consumer business, which grew 41% year over year in the September quarter. The September quarter direct-to-consumer business revenue of $4.85 billion topped the consensus for $4.64 billion. The paid subscribers for Disney plus stood around 73 million at the end of the latest quarter, outpacing analysts’ expectations for 65.5 million subscribers. Moreover, the growth from the media networks segment added to bullish sentiments. Media networks revenue grew 11% year over year to $7.21 billion. The market pundits have also been applauding cost-cutting measures to lower the impact of losses from parks and the studio entertainment business. Guggenheim, for instance, provided a $165 price target, claiming a revenue decline from the studio entertainment business is likely to be offset by lower expenses on marketing/promotional campaigns. The entertainment company has cut its parks workforce by 32K in the past few quarters to reduce losses. The majority of analysts look bullish over the revenue growth trends from two key businesses. RBC Capital Markets has set a $170 price target for Disney stock while Morgan Stanley raised the target price to $160 from $140.
Strengthening fundamentals are backing the Walt Disney stock
Although its parks business has been devastated by the coronavirus pandemic, the fundamentals started improving amid the vaccine discovery. Several companies including Pfizer (NYSE: PFE) have announced that their vaccine has more than 90% effectiveness in treating COVID-19. The majority of investors believe 2021 would be a recovery year for Disney and its parks business.
