When Disney's $ 71.3 billion deal to buy most of the 21st century Fox closes in the coming weeks, the combined company will remain an attractive target for investors, but only those willing to pay high-end spending on the direct consumer flow.
It is the basic takeaway of a new research report by Macquarie analysts Tim Nollen and Stephen Beckett. In the 18-page note for clients, analysts repeat their "outperform" rating on the stock, which has since moved since Disney ruled Comcast in July in the final battle against the Murdoch family's jewels. Macquarie's 12-month price target is $ 125. Disney closed today at $ 113.51, up nearly 1%.
The Mega agreement will transform the Hollywood map and transfer it to Disney assets such as Fox movies and TV studios and cable networks such as FX, and give it the majority of Hulu.
"Strategically, Disney makes the right moves, but economically we don't see a short-lived positive catalyst," warns the report and adds that "flat" earnings over the next few quarters are likely. When the smoke goes together, the analysts tell about more potential headwinds. These include the cost of integrating the two companies, higher debt, another 30% of money-losing Hulu, and interest costs if the regional sports networks Disney have to sell, for the modest price.
Because many details of 2019 and beyond remain unclear, at least for an investor day on April 11, analysts post out the combined portfolios and look at all sets and take.
Their "cautious case" sees a 4% hit on fiscal revenue 2019 and a 5% one in 2020, excluding integration costs. When the Hulu and Disney + losses are moderate, synergies will begin to add revenue in 2021, 22 and 23, respectively, by 2%, 9% and 11%, respectively. Including integration costs, analysts see no revenue halt before fiscal 2022.
However, in their optimistic scenario, the Hulu losses will moderate faster than expected, and the RSNs would outperform the current $ 15 billion forecast. The agreement will then be neutral to fiscal policy revenues by 2020, and add 9% in 2021 and high-yield percentage thereafter.
Based on recent guidance from Disney's first quarter earnings call earlier this month, Nollen and Beckett say $ 200 million The result of the operating profit is expected during the current quarter due to investments in ESPN + and Disney +. Launched last year, ESPN + has surpassed 2 million subscribers, but is expensive to operate due to sports license fees. Retaining the licensing rights to Disney + movie and TV titles for Disney +, the company will create a $ 150 million hit for fiscal 2019 revenue.
"There can be as many as 18 movies and 16 TV series in Some kind of development for [Disney+] plus we expect some licensed content to be bought or repurchased from other outlets, as Disney appears to fill out programming gaps before the service launches later this year, analysts say.
Nollen and Beckett points to recent advances of CBS in the streaming channel, indicating that Disney is able to double its total subscriber base every year, analysts predict a "perhaps conservative" year 1 number of 2.5 million subscribers to Disney +.
For Hulu, expect the couple that the streaming service eventually breaks even in 2022, with a projected 50 million subscribers, last month reported sending 25 million subscribers, up 48% from the same time point kt in 2018. Comcast and WarnerMedia remain minority interests in Hulu.