Disney (DIS) stock fell about 2% Friday on the heels of a fresh Wall Street downgrade.
Macquarie analyst Tim Nollen downgraded shares to Neutral from Outperform, citing declining linear networks, direct-to-consumer hurdles, and a slowing parks business.
"We see near-term uncertainties weighing on earnings, valuation, and sentiment," Nollen wrote in a note published on Friday. "We still appreciate Disney’s efforts and expect its transformation to streaming to succeed, but we see the stock as range-bound for now."
Nollen, who also slashed his price target to $103 a share from $125, added that he's concerned about Disney's ability to reach streaming profitability by 2024 — the company's current target.
"Disney appears likely to buy in 1/3 of Hulu at a price probably above $9bn – this along with a slower pace of sub adds (Disney+ may actually lose subs for the 3rd straight quarter in F3Q) may factor in to extended DTC operating losses beyond FY'24," he said.
Disney stock saw its biggest decline in six months after the media giant reported Disney+ shed 4 million subscribers in its fiscal second quarter following recent price hikes.
Streaming losses narrowed to $659 million in the quarter — above consensus estimates of $850 million — from a loss of $887 million in the year-ago period. The company reported a streaming loss of $1.1 billion in Q1 and a $1.5 billion loss in Q4.
Disney has reiterated plans to slash $5.5 billion in costs, which will include $3 billion in content costs. The company confirmed on its latest earnings call it will take a content impairment charge between $1.5 billion and $1.8 billion amid plans to remove multiple series and specials from both Disney+ and Hulu.
Deadline reported late Thursday that several titles, including Disney+’s "Willow," "Big Shot" and "The Mighty Ducks: Game Changers," along with Hulu’s "Dollface" and "Y: The Last Man," will be removed from their respective services on May 26.
ESPN's murky future, Florida overhang
Another issue for Disney is ESPN. Earlier this week, The Wall Street Journal reported Disney is currently laying the groundwork to transform ESPN to a fully over-the-top streaming service — something Disney CEO Bob Iger has said will happen.
"At this point, [ESPN+] is what I call a flanker business or brand to the main ESPN brand," Iger said in March. "Down the road, at some point, I think it's inevitable...[ESPN] will become a direct-to-consumer business."
Nollen echoed Iger's comments, writing in his note, "Disney next faces perhaps its biggest decision yet – not if, but when and how to put ESPN over the top."
"Doing so is inevitable, and it’s hard to see how it will be smooth: steep losses assumed in the pay TV bundle will have to be offset by strong subscriber sign-ups at a presumed high price, and before Disney even gets there it has to negotiate terms with pay TV operators on content, and with the leagues on costs for streaming rights," he cautioned. "We think the NBA renewal underway maybe a catalyst for an ESPN OTT future."
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at [email protected]
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