Why major analysts say Disney's subscriber guidance needs to come down

Published Wed, Aug 10 202212:41 PM EDT

As Disney prepares to report earnings Wednesday, major analysts fear further disappointment is in store for investors as streaming subscriber estimates remain too high and need to come down. The entertainment giant has said it plans for its Disney+ streaming service to have between 230 million and 260 million subscribers by the end of 2024. But the achievability of that goal has come into question as the stock has plummeted 28% this year and more than 40% from its highs — as fears of a mounting recession grow, competition booms and worries of a slowdown in consumer spending rock the industry. Amid this backdrop, RBC Capital Markets' Kutgun Maral expects a strong quarter for Disney across direct-to-consumer, saying in a note to clients that the company remains a top pick. However, investors should brace for downside to Disney's streaming outlook if they haven't already. "That said, we acknowledge the overhang of a looming reset to management's Disney+ subscriber guidance of 230-260mm, and while we believe our tempered forecast of 220mm is largely in line with buyside estimates, our recent experience with WBD suggests that guidance cuts are never as "priced in" as one would hope for despite it seemingly being universally expected," Maral wrote. Wells Fargo's Steven Cahall agrees that Disney needs to trim back its streaming goals. Although the bank remains bullish on the company and the continued progression of its Disney+ business, it cut 2024 streaming estimates to 213 million from 240 million. "We think estimates need a reset that harmonizes them with the stock price," Cahall wrote. "From here, we think DIS can exceed a more reasonable bar." Goldman Sachs' Brett Feldman also trimmed its subscriber estimates for 2024 to 223 million from 242 million last month, noting that the company's loss of streaming rights to the cricket Indian Premier League in India could lead the company to cut targets. Feldman maintained the bank's expected 11 million net additions for the fiscal third quarter. To be sure, there are some potential bright spots that could keep Disney on track to reach its target. Feldman pointed to the company's launch in more than 50 new markets, a new slate of content and its upcoming ad-supported tier as those catalysts. "The next two quarters will be pivotal for Disney's streaming story because two quarters of strong net adds could go a long way to assuage concerns that Disney will not be able to reach their 2024 guidance, while weak performance could put the 2024 guide out of reach," Evercore ISI's Vijay Jayant said in a recent note, calling a downtick in guidance from the company a potential "clearing event." At the same time, Jayant expects Disney to face advertising headwinds and slowing park attendance as consumers trim spending and fears of a recession loom. — CNBC's Michael Bloom contributed reporting