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Why UBS Raised Its Price Target on Disney

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Disney’s analyst upgrade

On May 6, UBS raised its price target on media giant Walt Disney (DIS) to $165 from $128, as the UBS analyst John Hodulik is optimistic about its upcoming video streaming service Disney+. Hodulik has, however, maintained its “buy” rating on Disney stock, which closed at $135, up 0.5% on Monday.

Disney is planning to launch Disney+ to directly compete with streaming giant Netflix (NFLX), Amazon’s (AMZN) Amazon Prime video, and Alphabet’s (GOOGL) YouTube TV on November 12. While Disney+ will be available at the cost of $6.99 per month, Netflix’s basic plan starts at $8.99 per month. The price of YouTube TV has been recently raised to $49.99 from $40 per month, while Amazon Prime video costs $12.99 per month.

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UBS’s view

According to UBS analyst Hodulik, Disney+ will help to improve the company’s operating leverage and grow its subscribers, which would generate earlier-than-expected profitability in the company’s Direct-to-Consumer and International segments. The analyst believes that Disney+ will be able to reach break-even in the segment in fiscal 2024 as compared to the earlier forecast of $2 billion in losses in fiscal 2024 and break-even in fiscal 2026.

Hodulik also expects Disney+ to have 65 million subscribers by 2024, which is higher than its earlier estimate of 50 million subscribers. Further, the analyst predicts Hulu and Disney’s sports streaming service ESPN+ to reach 52 million and 8 million expected subscribers, respectively, by 2024. Therefore, combining Disney+, ESPN+, and Hulu, Disney would have 125 million subscribers worldwide by 2024, whereas the UBS analyst projects Netflix to have over 300 million global subscribers in the same period.

The growing shift of audiences to online streaming options has raised the competition in the streaming industry as well. According to Research and Markets, worldwide paying subscribers are expected to reach around 777 million by 2023.

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