Disney, Warner Bros. Discovery, Paramount, Fox Corp. Face Stock Price Target Cuts

Disney, Warner Bros. Discovery, Paramount, Fox Corp. Face Stock Price Target Cuts

Tim Nollen, Macquarie media technology analyst, has decreased his stock price targets Walt Disney, Warner Bros. Discovery, Paramount Fox Corp., citing weak advertising markets and elusive streaming profitability.

Nollen is the latest Wall Street observer to weigh in on TV advertising budgets falling while marketers trim costs amid inflationary and recessionary risks, and revenue growth forecasts among U.S media stocks are cut. The expert reduced his price target for Disney from $120 to $110. While leaving the stock rating at “outperform”,

According to the media analyst, Disney stock could recover if Bob Iger, the newly reinstalled CEO, implements his profitability plan for Disney as well as the studio’s other streaming platforms. These plans could include Disney with ads as an additional revenue stream.

“We believe the lower priced ad-supported tier will attract price-sensitive viewers (crucial for getting to the management-guided 135-165 million worldwide Disney subs in 2024 plus up to 80,000,000 Disney Hotstar Subs in 2024), and will help resist churn. The ad dollars will also expand with ARPU (average revenue-per-user),” Nollen wrote in Jan. 4 research notes. The stock in Walt Disney rose $1.59 or 1.8 percent to $90.58 on Wednesday morning trading.

Macquarie analyst also mentioned current ad revenue drops due to the effect of a recession, and inflation stretching into 2023 to reduce Warner Bros. While maintaining an “outperform”, the Discovery price target has been lowered to $16, from $18, and maintained a $16 price target.

Nollen sees great success for Warner Bros., just like Disney’s ESPN. The renewal of the NBA broadcast deal for Turner Sports division saw Discovery, which pays approximately $1.2 billion annually to show pro basketball games. The Macquarie analyst sees the NBA costs rising at any rate, despite live sports remaining a bright spot in U.S media players.

“The problem with the NBA is that it is likely to demand significant price rises above the $2.6bn per year it receives from ESPN/ABC/TNT… It would not surprise to see the league demanding at least a 2x price hike, just like the NFL did in its renewal in 2023. We calculated that WBD could handle this, Nollen wrote. Stock in Warner Bros. Discovery rose 45 cents or nearly 5 percent to $10.00 in early morning trade.

Nollen also mentioned a weak advertising market to reduce Fox Corp.’s price goal to $30 from $32, while the stock rating remains neutral. However, Fox’s dependence on Fox Nation and the pay TV bundle may not be a virtue as ad spend declines and subscribers drop.

Nollen wrote that Fox’s dependence upon the pay TV bundle “has long concerned us,” and warranted a discounted valuation of peers. Nollen also noted Fox’s high exposure to advertising revenue in any economic downturn. In early morning trading, shares in Fox Corp. were slightly lower at 11 cents to $30.38

Paramount Global also received a reduction in its stock price target On continuing ad market declines it will drop to $15 from $16, while maintaining a neutral rating. Nollen notes that Paramount faces a major headwind due to its sharply rising content costs, especially since it plans to combine Paramount with Showtime later in the year.

According to the Macquarie analyst, profitability is Paramount’s biggest problem amid high content investment on streaming platforms. “So the near-term trajectory of overall earnings is straight down,” he said. The markets could benefit from any effort to reduce costs.

Paramount’s latest price cut is the most recent in recent days. Loop Capital Markets managing director Alan Gould released a research paper on December 23 that downgraded the Bob Bakish-run conglomerate to “sell” with an expected stock price target $14. One of the highlights was the direct-to-consumer (i.e. streaming platform) losses and uncertain guidance by the firm on profitability. “DTC division losses should reach $1.8-$1.9billion this year, nearly double the loss last year. Gould stated that management has projected that losses will peak in 2023 but has not given a time frame for breakeven.

Paramount Global shares also rose by 41 cents or 2.5 percent to $17.48 in the early trading.

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