Truist's 2023 streaming look favors Disney as top idea, cuts views on Lions Gate, Roku
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It should be another choppy year in the streaming entertainment space, Truist Securities says, setting up its streaming playbook for 2023 with some key Buys and a top pick in Walt Disney (NYSE:DIS).
The firm continues to view revenue tied to advertising and big-ticket consumer items (like cable bundles and TV/streaming player sales) as most sensitive to potential macro disruptions, analyst Matthew Thornton said, with revenues tied to low-cost consumer subs - such as music, followed by video on demand services - as least sensitive.
"In terms of positive countervailing influences, we have already seen a bounce in January in names that were likely victims of tax-loss selling in late 2022," Thornton said - namely Spotify (SPOT), Roku (NASDAQ:ROKU) and Lions Gate Entertainment (NYSE:LGF.A) (NYSE:LGF.B).
And looking ahead, he sees comparisons easing slightly in the first half as companies lap their exits of Russia (in the case of Spotify, Netflix (NFLX) and Warner Music Group (WMG)); in the second quarter, lapping the start of last year's material macroeconomic headwinds (again Spotify, Warner Music and Roku); "easing meaningfully" throughout the rest of 2023 as foreign exchange headwinds get lapped (helping Warner Music, Netflix, Lions Gate, Roku and Disney (DIS)), and a slight bonus from lapping supply disruption (in the case of Roku).
He's maintaining a Buy on Walt Disney (DIS) and calling it Truist's top pick in the space. Bob Iger's return as CEO, coupled with activism - Disney is facing a push for a board seat from investor Nelson Peltz - is a "unique setting for change," Thornton said.
At a minimum, there should be cost actions even if Truist doesn't expect them to be material - but every 1%/$500M cut to costs in Disney Media & Entertainment Distribution should add up to a 4%/$0.21 lift to earnings per share, he figures. At a maximum, "we could see transformational change to asset portfolio" including ESPN and perhaps Hulu.
He's maintaining a Buy rating on Spotify (SPOT) into some price hikes and the company's new focus on margins, and maintaining a Buy rating on Warner Music Group (WMG) but with some lower estimates on temporary share shift and some tough comparisons.
Netflix (NFLX) stays a Hold in his view - but with a price target raised to $339 vs. a current $326.22, as he expects a good fourth quarter report with some positive fundamental drivers and "very reasonable" membership targets.
Meanwhile, he's cutting Lions Gate (LGF.A) (LGF.B) to Hold from Buy, with some near-term hurdles and the lack of a catalyst suggesting benefits are further out. And he's cut Roku (ROKU) to Hold from Buy, with the company fully valued and facing a tough hurdle on EBITDA while wishing for more action on operating expenditures and buybacks. The new Roku price target is cut to $50, vs. a current $51.03.