Walt Disney Co. shares have been in a slump for years, but Wells Fargo Securities said there’s one possible move that could reverse the trend: ditching its streaming-video business .
The firm estimated that such a move could add about 40 per cent to the stock price by tightening the company’s focus on intellectual property and experiences. While streaming is popular with consumers, especially in comparison with traditional TV and movie-theatre releases, analyst Steven Cahall said it has been bad for shareholders.
Disney shares have lost nearly half their value over the past five years while the S&P 500 index has surged more than 70 per cent. Cahall argued that streaming is a major culprit behind the underperformance.
He said Disney is not set up to compete with high-volume streamers like Netflix Inc. and YouTube and “it’s an open question whether their release cadence is sufficient to manage churn for LT margins.” The firm has an overweight rating on the stock but lowered its price target to US$125 from US$146. On Monday, the shares rose about 0.8 per cent to US$96.37.
Instead of running its own service, he argued that the company should focus on licensing out its valuable library of intellectual property, which includes Disney’s animated features, Pixar movies and the Marvel and Star Wars franchises. Wells Fargo sees that roster as increasingly valuable at a time when other streaming services — including Apple Inc., Amazon.com Inc., Netflix, Alphabet Inc.’s YouTube, and Paramount Skydance Corp. — are likely to compete heavily for licensing rights to top titles.
If Disney was “focused purely on content vs. distribution ,” it could generate more than US$15 billion in annual licensing revenue, Wells Fargo estimated, representing strong growth relative to its licensing revenue prior to its pivot to streaming in 2019. “We don’t think the box office, Experiences, or brand value would suffer if the library were on a competing global streamer.”
The company will report its third-quarter results next month.