The Walt Disney Company (DIS) will announce its Q4 financial result after the closing bell on November 10. Needham’s Laura Martin expects lower Q4 sub adds (subscriber additions) to take a toll on its share price. I maintain a Neutral outlook on Disney stock.
After a detailed discussion with Disney’s management, Martin remains worried about the company’s Q4 setup.
In a note to investors, Martin stated, “We believe DTC (direct-to-consumer) sub adds for FY4Q21 are likely to disappoint owing to Hotstar India softness and disconnects (because in India credit cards do NOT autorenew from last years FY4Q21 launch) and the new Cricket season doesn’t start until calendar 2Q22.”
She added, “Historically, when DIS misses its sub adds, its stock often falls.”
The analyst’s comments should not come as a surprise to investors, as Disney CEO Bob Chapek had said before that its Q4 paid subscriber additions would be significantly lower than in Q3.
During Goldman Sachs’ annual Communacopia conference, Chapek stated that its Q4 global paid subscribers would likely increase by “low single-digit millions” compared to 14.7 million subscriber additions in Q3.
Chapek blamed the annual expiration of a significant number of subscriptions in India and pandemic-led production delays for lower subscriber growth.
Nevertheless, he remains confident about Disney’s subscriber growth in the long term. Equally optimistic is Martin on Disney’s long-term prospects, and she expects Disney to “be a winner in the streaming wars” in the longer term.
However, she maintains a Hold rating on Disney stock owing to the near-term weakness in subscriber growth rate and COVID-related uncertainty over its theme parks and film release earnings.
So far, Disney stock is trading in the red this year and has underperformed the Nasdaq composite index.
Further, TipRanks’ Stock Investors tool indicates that investors who hold portfolios on TipRanks maintain a Very Negative outlook on Disney stock, with 0.8% of these investors decreasing their exposure in the last seven days.
However, Disney scores a 9 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Meanwhile, Wall Street has a favorable outlook on DIS stock. On TipRanks, DIS stock has an analyst rating consensus of Strong Buy, based on 17 Buys and 3 Holds. The average Walt Disney price target of $217.79 implies 25.5% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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