Bernstein raises Disney PT, expects positive impact from password-sharing crackdown

investing.com:

Bernstein analysts reiterated an Outperform rating and slightly raised their price target on Disney (DIS) from $115 to $120 on Tuesday.

The key factor behind the broker’s bullish outlook is Disney’s recently initiated crackdown on password sharing for its streaming services, with management expecting to see the benefits in the latter half of the year.

Bernstein referenced Netflix's (NASDAQ:NFLX) successful efforts in this area as a benchmark for DIS, however, it cautioned that Disney might not see as much benefit as NFLX for two reasons.

Firstly, Disney has fewer shared accounts compared to Netflix, and secondly, the likelihood of converting shared users into new subscribers or accounts might be lower for Disney due to its streaming services, Disney+ and Hulu, being perceived as offering less value compared to Netflix.

“We estimate ~$1.2B in incremental revenue from the effort, taking Disney 6 to 8 quarters to capture the full benefit from when it starts enforcing (using Netflix’s cadence as a proxy),” analysts wrote.

Analysts predict that while the revenue boost from Disney's strategy might seem modest at approximately 6% of FY23's direct-to-consumer (DTC) revenue, the majority of this increase is expected to enhance free cash flow (FCF) significantly due to its higher contribution margin from unchanged content expenditure.

They estimate a revenue impact ranging from $1 billion to $1.5 billion, with over 70% potentially converting to FCF, potentially hastening DTC profitability within the next couple of years. Analysts remain optimistic, suggesting even greater potential earnings if conversion rates exceed expectations.

“As we’d expect Disney to have run the scenarios on the outcome of the crackdown, we assume that