Goldman Sachs: 'It is the dawn of a new era at Disney'

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With the closing of the 21st Century Fox acquisition and its upcoming streaming services, Walt Disney is turning over a new leaf, Goldman Sachs said.

The bank on Thursday reinstated its buy rating on Disney and its 12-month price target of $142, which would translate into a 26 percent gain for the stock. Goldman analysts see benefits from the acquisition of Fox, which is expected to bring in more international viewers and dial up the company’s economic scale, and they are bullish on the new streaming service Disney+, seeing it reaching 7.5 million global subscribers by 2020 and 73 million by 2025.

“It is the dawn of a new era at Disney,” said Goldman analyst Drew Borst in a Thursday note. “The $70 bn acquisition of Fox is now closed and the approaching debut of Disney+ streaming service in late CY19 marks a momentous shift in the company’s content monetization model from third-party licensing to direct-to-consumer streaming.”

Goldman expects Disney to roll out a “mass market streaming bundle” with Disney+, Hulu, ESPN+ for a competitive price.

It has not been easy for Disney trying to compete with streaming giants like Netflix.The media company recently revealed in a filing that its investment in Hulu was the primary contributor to a $580 million loss in equity investments. Shares of Disney have significantly underperformed the market this year with a 2.6 percent gain, versus the S&P 500‘s more than 13 percent surge.

“Despite our expectation for near-term investment headwinds, we view Disney+ as a positive long-term strategy given the rising importance of developing direct to consumer relationships, with higher long-run margins and better customer data about consumption,” Borst said.

The Fox takeover is poised to be a headwind for Disney, Goldman noted, estimating $2 billion in cost synergies by the two-year anniversary.

“We see the Fox acquisition resulting in economies of scale, increased bargaining power with distributors, content diversification and increased international reach,” Borst said.

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