Analysis: Was Barclays’ Disney Downgrade a Bad Call?

A smartphone with the "Disney" logo is seen on a keyboard in front of the words "Streaming service" in this picture illustration taken on March 24, 2020. (Dado Ruvic/Reuters)

News that Barclays analyst Kannan Venkateshwar downgraded Walt Disney Co. from Overweight to Equal-Weight with a price target of $175, down from $210, caught many investors by surprise and caused the stock to sink by 3 percent in Monday’s trading.

What Happened

Venkateshwar said this downgrade was justified based on a perceived slowing of the subscription level of the Disney+ streaming service, claiming the company has fallen behind its goal of reaching 150 million Disney+ subscribers by 2024. Disney CEO Bob Chapek stated last month the fourth-quarter global paid subscribers for Disney+ is forecast to by “low single digit” millions, down from a 58.5 million increase in the previous quarter.

“While the company appears to be targeting one new piece of content a week, not every piece of content has the same franchise value or visibility,” Venkateshwar said in the note.

What Happened Next

However, one prominent media expert is questioning whether the Barclays analyst is on target.

In an interview with Benzinga, Ian Greenblatt, managing director for technology, media, and telecommunications intelligence at J.D. Power, observed that tracking the streaming sector requires different considerations when compared to other media markets.

“Streaming isn’t necessarily a zero sum game, where other aspects of telecom are zero sum,” Greenblatt said, noting the traditional media industry strategies of growing by attracting customers from competitors doesn’t fit into the streaming environment.

“I have a hard time thinking, ‘Oh, well, the markets are completely mature and everybody who’s interested in streaming has got all of their subscriptions, so there is no more growth,’” Greenblatt continued. “I don’t believe that. There’s always room for quality and Disney+ enjoys a fairly enviable position in that the vast majority of its content is very high quality.”

What Didn’t Happen

Greenblatt contradicted Venkateshwar in observing that Disney+ “is in a nice position to continue to grow,” adding that the streaming sector has yet to plateau, noting there are still a considerable number of consumers who have yet to jettison cable services in favor of streaming.

“The market has to taper off or mature somewhat at a certain point, but have we reached that point yet?” he asked. “I don’t know, but it still feels like there’s a lot yet to happen.”

Greenblatt also pointed out that Venkateshwar’s analysis focused solely on Disney+ while ignoring the company’s other streaming activities, including ESPN+ and Hulu.

“Are they capturing share of wallet and mind?” he said. “Yes, they’re doing a nice job of it.”

Price Action

Disney stock opened for trading Tuesday at $171.14, sandwiched between its 52-week range of $117.23 and $203.02. Shares trade around $170.33 at publication time.

By Phil Hall

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