Warner Bros. Discovery (NASDAQ: WBD) and Disney (NYSE: DIS) are two media companies that turned to video streaming to evolve with the times. Undoubtedly, Netflix (NASDAQ: NFLX) showed the type of economic profits to be had from going direct-to-consumer with original streaming content. As viewers continue cutting the cord while video streamers embrace lower-cost, ad-supported tiers, streaming is likely to become the new go-to medium for advertisers. Using TipRanks’ comparison tool, we can see that analysts expect more upside from WBD but are generally more optimistic about DIS, giving it a Strong Buy rating. Nonetheless, let’s dig deeper.
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Though a recession could be a dampener for streamers as the so-called “streaming wars” take it to the next level, I think it’s a mistake to count the top content creators out. At the end of the day, quality entertainment will attract customer dollars and attention from advertisers. Also, it’s low-cost tiers that could be key to greater resilience through economic downturns.
In prior pieces, I noted that it was costly just to keep up with rivals in streaming. Call it staying on the content-spending mouse wheel, if you will, but I do think there’s an end game. The streaming leader of the future could attract ad revenue away from other entertainment sources (think social media). Undoubtedly, prospective advertisers want to be where the viewers are at. Though it seems like spending billions on content with no promise of a handsome return seems reckless, I do think valuations have come down such that the herd is missing out on the bigger picture.
The streaming wars aren’t dead – far from it. A recession has caused a bit of a pothole that streamers will need to roll over, and media firms like Warner Bros. and Disney have had to pay hefty startup costs to get their platforms running up to speed. However, in due time, I do think both media firms are more than capable of becoming juggernauts in the SVOD (streaming video on demand) market.
Warner Bros. Discovery (WBD)
Warner Bros. Discovery has not been off to a very good start. It went live on public markets when Netflix and the rest of the streaming market suffered its worst sell-off to date.
Understandably, investors have not been enthused by recent developments. Budget cuts and canceled productions were not what investors wanted to see out of the gate from the newly-merged firm. However, I do think the company is misunderstood. Its hands may be tied on the content-creation front, given the macro headwinds and heavy debt load. Nonetheless, I believe the merging of the HBO Max and Discovery+ platforms could act as a compelling catalyst over the next two years, especially if the firm looks to undercut its rivals.
In a prior piece, I noted how management views its service as “underpriced.” Whether it maintains the value proposition once its two top platforms merge remains to be seen. Regardless, HBO Max has one decisive edge up its sleeves. It creates very high-quality content that tends to score top marks with critics. House of Dragon has been hitting the spot with viewers. Ultimately, the “quality over quantity” approach could help Warner Bros. Discovery edge out its peers over the next decade.
Finally, Discovery+ has all the hit TV shows that could entice many to cut the cord and make the jump to streaming. With HBO Max and Discovery+ together as one, I do view the combo as one of the stickier in the streaming space right now.
Once debt levels are reduced such that the firm can go all-in on content spending, I view the company as a top share-taking candidate.
What is the Price Target for WBD Stock?
Wall Street is optimistic about Warner Bros., going forward with a “Moderate Buy” rating. The average WBD stock price target of $24.09 implies 91% upside potential from current levels.
Walt Disney (DIS)
Disney has led the way for media companies into the streaming realm. Thus far, Disney’s move into streaming hasn’t been enough to get the stock moving higher. That’s primarily because of the looming recession, the lingering impact of the COVID-19 pandemic, and a broader souring for video streamers.
Despite the headwinds, though, Disney has done a fine job with Disney+, which can continue to outgrow its peers, thanks to legendary brands and a strong release pipeline. Indeed, Disney is spending a considerable sum to attract viewers. In terms of quality per dollar, it’s really hard to top Disney as a competitor. Disney has the content, and it’s acted as a huge moat source for the firm.
Disney has the pockets to produce a ton of original programming. The big question for Disney is if it can continue to deliver on the quality front. I think it can.
In the meantime, I view Disney+ as one of the more recession-resilient streaming platforms out there. It’s really cheap entertainment that goes a long way! As the parks and amusement businesses get mixed results going into recession, I’d look for Disney to be a prime rebound candidate once the markets turn a corner.
What is the Price Target for DIS Stock?
Wall Street analysts can’t get enough of Disney, with a “Strong Buy” rating based on 14 Buys and three Hold ratings. The average DIS stock price target of $143.40 implies 44.9% upside potential from here.
Conclusion: Wall Street Sees Higher Upside Potential from WBD Stock
Wall Street sees big gains coming for the battered streamers. I’m inclined to agree. At this juncture, Wall Street likes Disney stock more but sees greater upside potential in Warner Bros. Discovery. Indeed, the higher reward could accompany higher risk.
