ii view: Disney deal gets Wall Street approval

Shares in this iconic entertainment giant trade comfortably below their 2021 high of just over $200 per share. We assess prospects for this Dow Jones company.

7th January 2025 15:53

Keith Bowman from interactive investor

Combining Hulu + Live TV business with that of Fubo’s

Head of Disney Corporate Development Justin Warbrooke said:

“We have confidence in the Fubo management team and their ability to grow the business, delivering high-quality offerings that serve subscribers with the content they want and offering great value.”

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Entertainment colossus The Walt Disney Co (NYSE:DIS) has announced plans to combine its Hulu + Live TV business with that of fellow US stock market listed company FuboTV Inc (NYSE:FUBO).

The new Fubo, which will be 70% owned by Disney, will have a combined 6.2 million North American subscribers, with the Multiple Video Programming Distributor (MVPD) hoping to enhance consumer choice.

Disney shares rose around 1% following the news, with Fubo shares soaring around 250%. Both Hulu+ Live TV and Fubo are streaming services that operate like traditional linear TV channels. Disney shares rose 23% in 2024 as former head Bob Iger pushed to transform the company back to its winning ways.

Fubo is focused on live sport and news content, while Hulu+ Live TV is also known for its entertainment programming as well. The deal excludes Disney’s streaming Hulu content which stays with Disney.

Disney’s streaming service, with subscribers totalling over 170 million, achieved profitability back in the third quarter of 2024. Revenues from its live ESPN or Sports related business rose just 3% during 2024.

Fubo plans to create a new sports and broadcasting service, featuring Disney’s premier sports and broadcast networks. Fubo currently streams more than 55,000 live sporting events per year.

Under the deal, Disney and Fubo have settled a previous legal dispute regarding Venu, a proposed sports streaming service from Disney, Fox and Warner Bros. Discovery Inc Ordinary Shares - Class A (NASDAQ:WBD).

Broker Morgan Stanley reiterated its ‘overweight’ stance on Disney shares post the announcement, highlighting the company as a ‘top pick.’

ii view:

Disney employs over 190,000 people across its many brands including Pixar, Marvell Studios, Lucasfilm, ABC News, Hulu and Entertainment and Sports Programming Network or ESPN. Experiences or theme parks and cruises generated its biggest slice of profits during the fiscal year 2024 at 59%, followed by Entertainment at 25% and Sports the balance of 16%. Management goals include achieving sustained profitability for its streaming business as well as improving the output and economics of its film studios.

For investors, competition for Fubo via the likes of Alphabet’s YouTube TV is not to be overlooked. High borrowing costs also continue to squeeze the disposable income of customers globally, and reigniting creative flare for film and leaning less on sequels remains a work in progress. A return to the previous chief executive Bob Iger raises questions and uncertainty over likely future leadership, while a forecast dividend yield of 0.8% is less than Comcast Corp Class A (NASDAQ:CMCSA) at over 3% and ITV (LSE:ITV) at almost 7%.

On the upside, the deal sees Fubo becoming the sixth-largest MVPD in the US, with potential for other less core Disney services to be dovetailed in. Disney’s diversity of operations regularly sees positives for one division countering challenges for another. Costs remain a high management focus, while the group’s brand strength is strong.

In all, and despite ongoing risks, chief executive Bob Iger continues to underline his determination to rejuvenate this media mammoth and currently enjoys support on Wall Street.

Positives:

Geographical diversity, strong brands, and media content bank
Focus on costs

Negatives:

Cost pressured consumers may cut entertainment spending
Intense competition

The average rating of stock market analysts:

Buy

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