Why Disney's Valuation Can Rise $55 Billion on New Streaming Magic

Walt Disney Co. (DIS), whose stock has led the market this year, is likely to rise as much as 25% from its early October trading price as the company expands its direct-to-consumer streaming strategy, according to Morgan Stanley analyst Benjamin Swinburne, per Barron's. That would boost its market value by about $55 billion to $290 billion.

Disney Streaming to 140 Million Subscribers

The Morgan Stanley bull reiterated his outperform rating on shares of the entertainment behemoth and a $160 price target, citing its breadth of content and production capabilities. He estimates that a variety of positive drivers, including early promotions and discounts, distribution partnerships with Apple Inc. (AAPL), Roku Inc. (ROKU), Alphabet Inc. (GOOGL) and others, as well as a successful international rollout, will help its new streaming service to count over 140 million subscribers in five years. 

Within that initiative, Disney+ should grow to about 15.5 million subscribers by September of next year, and 75.5 million by the end of 2024. He sees ESPN+ users reaching 10.3 million in five years, from 2.7 million at the end of fiscal 2019, and adult-focused Hulu amassing 55.4 million subscribers from 29.2 million over the same respective periods, per Barron’s. 

Disney stock has gone sideways since April, when the stock spiked after the company announced aggressive new targets and plans for its streaming strategy. In March, Disney closed its mega-deal to buy the majority of 20th Century Fox Inc's (FOXA) entertainment assets for a staggering $81.2 billion. This transaction was a bet on beefing up the company’s production capacity and intellectual property portfolio, and gave Disney majority ownership of Hulu. 

While the blockbuster deal, which included debt, now adds to investments in new content, marketing, foregone licensing revenues, and other costs of the streaming service, Swinburne still thinks the new focus is a net positive in the long-run. He expects the DTC platform to rake in $23.3 billion in revenue and make a positive contribution to earnings in fiscal 2024. 

What’s Next?

Disney+ is slated for release in the US on Nov 12, starting at $6.99 a month, roughly half the cost of Netflix Inc. (NFLX). Swinburne recommends buying shares before that date. If the Netherlands is any indication, the bulls will have more to cheer about, with testers in the European country offering favorable reviews and indicating they will may use competing streaming services less, as outlined by the Wall Street Journal.