Walt Disney NYSE:DIS shares could rise roughly 40% if the company exits streaming entirely and pivots to licensing its IP library, Wells Fargo analyst teven Cahall argues. The firm maintained an Overweight rating but lowered its price target to $125 from $146. Cahall said streaming has been bad for shareholders. Disney shares have lost nearly half their value over the past five years while the S&P 500 gained more than 70%. Disney shares were flat in premarket.
The bull case rests on IP value. Wells Fargo estimates Disney could generate more than $15 billion in annual licensing revenue by focusing "purely on content vs. distribution," a significant step up from its licensing revenue before the 2019 streaming pivot. The library includes Disney animated features, Pixar, Marvel, and Star Wars, assets that competing streamers including Netflix (NFLX), Apple (AAPL), Amazon (AMZN), Alphabet's (GOOGL) YouTube, and Paramount Skydance (PSKY) would likely compete aggressively to license. Cahall said Disney is not set up to compete with high-volume streamers and questioned whether its release cadence is sufficient to manage churn over the long term.
Disney reports Q3 results early next month, where streaming subscriber and margin trends will be the key metrics against which Cahall's thesis will be tested.