In the face of turbulent economic times, Walt Disney Co.’s theme-park business could still see some magic.
Bank of America’s Jessica Reif Ehrlich wrote Thursday that attendance at Disney
parks “remains resilient despite recent macro volatility as visitors rarely cancel trips once booked.”
She added that the company’s move to cancel Disneyland annual passes “is a positive indicator for booking trends and overall demand,” and she expects that the entertainment giant could receive a boost from overseas visitors. As international travel continues to pick up, overseas guests could help make up for “any potential softness in U.S. consumer demand,” according to Reif Ehrlich.
There could be positive signs elsewhere in Disney’s business, too. Reif Ehrlich noted that the company expanded its direct-to-consumer streaming service into 40 markets during its fiscal third quarter, a move that she anticipates will spur a sequential acceleration in net subscriber additions during the period.
Reif Ehrlich also shrugged off recent concerns about the status of Disney’s Indian Premier League cricket rights. The company currently has both the television and streaming rights to the popular cricket league, which has helped Disney build its streaming subscriber base in India, but Disney’s management team opted against renewing the streaming portion of those rights for the next five years amid hefty bidding prices.
While Reif Ehrlich acknowledged that the Indian Premier League issue is “the key investor concern” for Disney’s streaming business in the near term, she deemed the company’s choice to pass up another five years of the streaming rights as “prudent,” citing “the elevated cost for these rights,” as well as the lower average revenue per user that subscribers to Disney’s Indian streaming service generate. In addition, there’s been a “shifting investor focus toward profitability vs. subscribers,” she continued.
The changing dynamics in cricket streaming could prompt Disney to “reevaluate” its fiscal 2024 Disney+ subscriber forecast, according to Reif Ehrlich, but she thought such a move would be “a negative one-day headline” that could potentially serve to “remove a key investor overhang” and reset expectations for the streaming business.
Reif Ehrlich cut her price objective on Disney’s stock to $122 from $140, but she kept her buy rating on the name. Disney shares are off 0.3% in Thursday morning trading, and they’re down about 33% over the past three months as the Dow Jones Industrial Average
has lost 11%.