Disney (DIS) stock has been on the backfoot for the past year, with shares having fallen 25%. Determined to prove its potential to bounce back, the entertainment giant stated during its last earnings call that it was, in fact, a metaverse company.
That would all be well and good assuming investors actually agreed with this – which not all do. As with every good debate, it must begin with a definition of terms. 5-star analyst Laura Martin of Needham gives some clarity by creating a list of metaverse definitions by various experts. Martin then provides her own definitions, using these as the basis for her conclusion to the question, is Disney a metaverse company?
Martin begins with Web3’s definition, which emphasizes the decentralized character of the metaverse. This would render Disney beyond the pale, because DIS is very much centralized.
The Snow Crash definition, purported by Neil Stephenson, requires VR that makes immersive, interactive and social digital realities, utilizing consumers’ avatars. This definition (similar to that of FB) excludes Disney.
Then there is the definition that a metaverse company simply contains digital assets. In this case, Disney is a metaverse company, due to its streaming, film and TV digital content.
Martin proposes that Disney is, to an extent, correct in claiming its status as a metaverse company, although not a “pure play” one. Supporting evidence for its metaverse title includes the fact that World of Warcraft, Fortnite and Roblox constitute the metaverse today. Martin disagrees with Neil Stephenson’s take that the tech/distribution method is central to the metaverse, and thinks that Disney belongs in the category despite its lack of digital realities that are “immersive, interactive and social.”
Additionally, content is the key to driving metaverse adoption. There is no argument that Disney has seriously high-quality fan-driven content.
Above all, it appears to Martin that there is a consensus regarding two defining aspects of the metaverse: interactivity and immersion. She believes that “TV and film content will bring hit ‘worlds’ to the metaverse because how much would a Star Wars fan pay to have their avatar interact with their favorite character?” The analyst thinks that ‘worlds’ with giant fan bases are needed for the metaverse to become mainstream.
Martin also points out that Disney’s IP library is, in her opinion, the best there is, therefore Disney reigns supreme because “mass adoption of broader demos requires popular films and TV shows,” and young people will congregate in video game metaverse worlds.
Now, how does this all translate for investors? Despite the good news so far, Martin reiterates her Hold rating without providing a fixed price target. This results from her opinion that “consensus estimates for DIS are too high” considering there will be high near term investment in DTC in 2022. Moreover, as vaccinations roll out slowly throughout the world, another uncertain year of economic contributions from amusement parks, ESPN, and film releases is expected. (To watch Martin’s track record, click here)
The rest of the Street is more optimistic than Martin. 15 Buys and 7 Holds have been published in the last three months, making DIS a Moderate Buy. At $194.50, the average price target brings the upside potential to 32%. (See DIS stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
