One of Wall Street's biggest Disney bulls says the company's Disney Plus guidance could be conservative

Daniel Strauss

November 14, 2019 4:49 PM

Rosenblatt Securities analyst Bernie McTernan said after Disney Plus reached north of 10 million sign-ups in its first few days that Disney's five-year guidance for subscribers could be conservative.

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Disney said during its investor day in April that it expects Disney Plus to have between 60 million and 90 million subscribers by the end of 2024.
McTernan's $170 price target for Disney is tied for the highest of any major analyst on Wall Street.
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One of Disney's biggest fans on Wall Street thinks the company's projections for Disney Plus could be conservative.

"Initial sign ups today, reinforces our bullishness towards Disney+ and belief that FY'24E guidance could be conservative," Rosenblatt analyst Bernie McTernan wrote in a note to clients Wednesday, referring to the announcement made by Disney that its new streaming platform surpassed 10 million sign-ups.

Disney told investors in April that it expects its new streaming platform to accumulate between 60 million and 90 million subscribers by the end of 2024.

McTernan's $170 price target for the media conglomerate is tied for the highest of any major analyst on Wall Street. The next thing investors should be focused on is how many people who sign up for Disney Plus convert to paying subscribers, he added in his note.

"While 10M sign ups is different than 10M paying customers (1-week free trial) we believe there will be a strong conversion from free trials to paying subscribers benefiting from the partnership with Verizon," he said.

The company struck a partnership with Verizon ahead of the launch of Disney Plus to offer the wireless carrier's customers a free year of the service. According to McTernan, that could give Disney access to as many as 17 million accounts.

The news of Disney Plus surpassing 10 million sign-ups less than two days after launch sent the company's shares spiking as much as 7% . The company also experienced technical difficulties on launch day due to stronger-than-expected customer demand.

McTernan said the biggest pushback he receives on his "buy" rating for Disney is that the stock looks expensive based on near-term earnings multiples. Shares have risen more than 35% this year leading up to the rollout of Disney Plus.

According to McTernan, valuing Disney based on earnings multiples understates the value of the company's direct-to-consumer business, which includes Disney Plus, Hulu, and ESPN Plus.

While Disney appears optically expensive on near-term PE multiples, we believe this valuation methodology misses the potential value Disney is creating in DTC services.

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