CREDIT SUISSE: Disney needs to be rewarded for going after Netflix

Mickey minnie disney worldGetty ImagesMickey and Minnie Mouse at Disney.
  • Disney plans to spend $US1.2 billion in direct-to-consumer services.
  • Credit Suisse maintains its price targets though it plans to revisit stock in future.
  • Disney cable network subscribers likely to grow.

Disney will spend $US1.2 billion in direct-to-consumer services in the next few years in a play to launch its own video streaming services, priming it against Netflix.

The company plans on investing hundreds of millions of dollars in a Disney-branded movie and TV service and an ESPN-branded service, a price tag that some investors fear is bound to grow. However, the investment will likely be reflected in the next one to two quarters, which “will remove one of the biggest overhangs on the stock,” according to Credit Suisse.

“We also argue that Disney should be rewarded for aggressive investment, given the market opportunity in 5 years for the Disney-branded service is in excess of 20m homes, and successful DTC services should put the company in a substantially stronger strategic position as consumption of video content shifts to online platforms,” Omar Sheikh, an analyst at Credit Suisse, wrote in a note.

Disney announced that it would pull its movies from Netflix to start its own stand-alone service in August. The company also plans to acquire a majority stake in the streaming service BAMTech with a cost plan of $US570 million over the next two years.

Disney’s cable network subscribers should see growth from September onwards with the inclusion of Hulu’s live product and YouTube TV, Sheikh said. Ratings of ESPN’s NFL games have performed better than its peers, which could bolster ad sales, he added.

Credit Suisse maintains its $US120 price target, which is 22.5% above Disney’s current price.

Disney shares are down about 6% this year.

To read more about Disney’s advantages in its streaming service bet, click here.

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