Disney shares jumped Friday as excitement around the media giant's streaming service overshadowed a sharp profit decline for the previous quarter.
The company posted Thursday an adjusted profit of $1.07 per share. That's down 28% from $1.48 per share in the year-earlier period. Disney's earnings did, however, top a Refinitiv estimate of 95 cents a share.
Still, Wall Street analysts glossed over the profit decline as Disney gets set to take on streaming giants such as Netflix at their own game. So far, analysts like Disney's chances in the streaming wars as it is expected to gobble up subscribers for the $6.99-per-month service, which will be launched Tuesday.
"The market is sensing big things are brewing in the quarters ahead," Michael Nathanson, founding partner at MoffettNathanson, said in a note. "As we have vividly seen at Netflix, when moving in the right direction, momentum in subscriber growth makes those metrics investors' sole focus."
Nathanson has a price target on Disney shares of $150, which represents a 12.8% upside from Thursday's close of $132.96. Disney shares closed 3.8% higher at $137.96.
Disney+ will launch next week with hundreds of classic Disney movies, thousands of TV episodes and content that's exclusive to the platform, including "The Mandalorian," a series set in the "Star Wars" universe.
This content, coupled with recently announced distribution deals with Verizon and Amazon, has led to high subscriber expectations from Nathanson. The analyst expects Disney+ to have about 8 million subscribers around the world by year-end and 18 million by the time the company's fiscal year 2020 ends.
Nathanson is not the only one expecting strong growth from Disney+. Steven Cahall, an analyst at Wells Fargo Securities, also expects Disney+ to end the calendar year with 8 million subscribers. He also thinks 21 million people will have signed up for the streaming service by the end of Disney's fiscal year 2020. Doug Creutz, an analyst at Cowen, expects Disney+ to obtain more than 30 million subscribers by the end of fiscal 2021.
Goldman Sachs analyst Drew Borst also thinks Disney's "Star Wars" content will help build up Disney+'s subscriber base.
"To demonstrate the scale of the Star Wars fan base, consider that the first two movies in the current Skywalker trilogy — The Force Awakens (2015) and The Last Jedi (2017) — averaged 27 million in domestic movie ticket sales on the opening weekend alone. Assuming those individuals equate to 9 million unique households (i.e., 2.5 individuals/household national average), that represents a meaningful subscriber opportunity for Disney+," Borst said.
Disney first unveiled its streaming service on April 11. Since then, the stock is up more than 13% and hit a record high in late July.
"DIS's rerating indicates investors think the strategy will work," said Wells Fargo's Cahall in a note. "We agree, and DIS with DTC at scale is extremely profitable due to an owned library, dedicated fan base of recurring viewers, global brand and dominance in the kids/family genre."
— CNBC's Michael Bloom contributed to this report.