Long-time entertainment industry leader Walt Disney Co. (DIS) isn't going anywhere, according to one team of bulls on the Street who see the company positioned to dominate as "arguably the world's leading content company." (See also: Comcast's $31B Sky Bid Could Start Bidding War.)
Analyst at RBC Capital Markets foresee the Burbank, California-based media giant spending as much as $30 billion annually on its video-streaming push, far outspending rivals including Wall Street darling Netflix Inc. (NFLX), which plans to spend $8 billion on new and original content this year. In 2017, Netflix spent $6.3 billion on programming, according to MoffettNathanson, compared to Disney's $7.8 billion and the $8 billion spent by both HBO owner Time Warner Inc. (TWX) and 21st Century Fox Inc. (FOX) on non-sports content. E-commerce and cloud computing giant Amazon.com Inc. (AMZN) reportedly spent $4.5 billion.
In a note to clients, RBC's Steven Cahall upped his 12-month price target on DIS to $135, representing an approximate 30% upside from Monday afternoon. Trading up 0.4% at $105.13, DIS reflects a 5.2% decline over the most recent 12 months, compared to Netflix stock's near 130% surge over the same period. Amazon shares have increased 87.9%, while FOX has grown 25.1% over the year. (See also: Netflix—Up 60% YTD—to Continue Rally: Street Bulls.)
About to Enter a 'League of Its Own'
As Disney's $52.4 billion bid to buy 21st Century Fox assets, including its streaming service Hulu, awaits regulatory approval, Cahall expects a surge in spending on content to put Disney "in a league of its own."
"We conclude that DIS remains among the best in the biz, with a valuable opportunity to match NFLX in streaming, and benefits from the FOXA deal and Hulu," wrote the RBC analyst. He highlighted Disney's unparalleled customer engagement as providing the company with an edge against competitors. Further, he sees Disney's popular theme parks and cruises helping the entertainment behemoth draw in an organic and global audience, estimating that 50 million households that vacation with Disney could easily turn into subscribers on its new on-demand platform. That number doesn't factor in Star Wars and Marvel fanatics, wrote Cahall, who expects the wide range of comic book-movie lovers to provide another boost to Disney's subscriber audience. The analyst expects Hulu, with its already 17 million subscribers, to aid Disney in targeting a more adult-centric audience.
"The potential scale of DIS DTC [direct-to-consumer] + Hulu is the real deal," said Cahall , indicating that Disney could spend $15 million annually to bolster the platform's offerings and gain a greater market share.