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Morgan Stanley: Disney Earnings Could Nearly Double In Five Years

By Danny Vena - Jul 24, 2019 at 2:30PM

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The House of Mouse could reap big dividends from Marvel content and its upcoming streaming service.

There's little doubt that Disney (DIS -1.11%) investors are excited about the potential for the company's upcoming streaming service, Disney+. The stock had been range-bound for nearly three years before anticipation for the soon-to-launch streaming service began to drive up the share price. Disney's management laid out a detailed scenario at the company's investor day on April 11, and its stock has risen more than 20% since that announcement, and more than 30% so far this year. 

It isn't just investors that are excited. Analysts are increasingly bullish about the House of Mouse, with the latest prognostication calling for a huge earnings boost for Disney in the coming years.

A host of Avengers running and flying into battle against an unseen foe.

Image source: Disney.

Marvel-ous outlook

Morgan Stanley analyst Benjamin Swinburne released a note to clients on Tuesday positing that Disney could double its earnings by 2024. He went on to note that Marvel content plays "perhaps the most critical role" in attracting the masses to Disney's upcoming streaming service. 

While challenges remain, Disney's "brands and content position give it a strong chance of success." Swinburne expects Disney to attract more than 130 million streaming subscribers by 2024, with the majority of those coming from international markets.

Analysts' consensus estimates are calling for Disney to produce earnings per share (EPS) of $6.50 for fiscal 2019, and Swinburne believes the company can boost EPS to between $11 and $12 by 2024 on the back of the Marvel content coming to Disney's streaming service. 

A heroic feat

At Comic-Con this week, Marvel announced an ambitious content slate bound for both movie theaters and Disney+. With several Avengers spinoffs in the works -- which will appear exclusively on Disney's streaming platform -- it will serve to attract the Marvel faithful to Disney+ to catch up on their favorite superheroes between theatrical releases.

Avengers: Endgame, the final chapter of the saga, just broke the all-time box office record, generating $2.79 billion in ticket sales and unseating James Cameron's interplanetary masterpiece Avatar from the top spot, a position it held for nearly a decade. This illustrates that Marvel and its trove of superhero content have moved beyond fanboys and girls and established themselves firmly in popular culture. 

Captain Marvel standing in the dessert.

Image source: Disney.

How we get there from here

Disney+ is set to debut on Nov. 11, 2019, at $6.99 per month or $69.99 per year, pricing it significantly below other popular streaming services. Market-leader Netflix offers three tiers beginning at $8.99 per month. For perspective, Amazon Prime Video is also $12.99 per month, $119 per year as part of its Prime customer loyalty program, or $8.99 per month for streaming video alone. Hulu, which is now controlled by Disney, costs $11.99 per month.

Management estimates that Disney+ subscribers will number between 60 million and 90 million by 2024, but Swinburne believes the company is underselling its potential and is predicting a customer base of more than 130 million subscribers by then. If his forecast turns out to be right, that would add nearly $11 billion to Disney's revenue in 2024. Using Disney's estimated content investment of about $2.5 billion and its current share count and that alone would add more than $6 per share to Disney's bottom line, getting us within throwing distance of Swinburne's estimate.

Investor takeaway

At this point, it's all fun with numbers, and no one knows for sure how many streaming subscribers Disney+ will ultimately command in the coming five years. That said, considering how well the Pixar, Marvel, and Stars Wars acquisitions have gone, it would be a fool's errand to bet against Disney CEO Bob Iger.


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