The Netflix Effect Is Only Half The Story For Disney

Walt Disney Co DIS shares have been drifting lower by more than 7.7 percent since the beginning of the month, and some investors have attributed much of the weakness to the company’s recent announcement that it is pulling its content from the Netflix, Inc. NFLX platform and launching its own streaming service. According to Loop Capital analyst David Miller, the Netflix decision is only “half the story.”

Disney shares are down roughly 5 percent since the company reported fiscal Q3 earnings. On Wednesday, Miller said those earnings revealed more weakness from ESPN and ABC’s advertising businesses, earnings dragged down by further BAMTech investment and a new streaming service that leaves investors with more questions than answers.

While Disney seems to be following in the footsteps of traditional TV giant CBS Corporation CBS in launching its own streaming service, Miller said Disney faces a more difficult situation than CBS.

“For purposes of comparison, it took CBS a little over two years to get to 4.0mm subs split between Showtime OTT and CBS All Access, and CBS doesn't have cord-cutting issues, so that venture was super-accretive,” he wrote (see Miller's track record here).

Related Link: Netflix: Buy The Disney Dip

Loop estimates that Disney would need 6 million streaming subscribers at a price of $4.99 per month to offset the 3-percent loss rate of viewers due to cord-cutting.

Disney simply has too many unknowns at this point for Loop to be bullish on the stock.

However, Rosenblatt Securities analyst Alan Gould said this week that investor should be swooping in to buy Netflix stock following its recent dip.

Rosenblatt has a Buy rating and $200 price target for Netflix, and Loop has a Hold rating and $107 price target for Disney.