Trouble within Disney ‘s direct-to-consumer business could weigh on the media stock for the foreseeable future, according to Wolfe Research. Analyst Peter Supino downgraded the entertainment stock to peer perform from outperform, and suspended his price target on shares, citing concerns related to revenue growth within the company’s direct-to-consumer and linear TV businesses. The analyst also removed a price target of $133 per share. DIS YTD mountain Disney shares this year “The Parks growth, cost cuts, and DTC ARPU growth we’ve forecast are in consensus, while the DTC subscriber and linear TV outlooks keep deteriorating,” he wrote in a Friday note. “DTC plan for > subs, > prices and < cost seems like cognitive dissonance.” The downgrade from Wolfe Research comes after Disney shares tumbled on Thursday on quarterly results that showed a decline in streaming subscribers despite narrowing losses within the business segment. Elsewhere, linear TV shows a 7% decline in revenue from a year ago. “After yesterday’s 8.7% tumble and with strong Parks and cost reduction trajectories, we expect valuation support,” Supino wrote. “Today’s late cycle consumer environment and deteriorating DTC and linear revenue growth leave us more concerned about forecasting risk and time decay.” The stock’s up more than 6% this year, despite a 10% slump in May. Given this setup, along with concerns over lower advertising and affiliate revenue, Supino is bracing for a slower path to direct-to-consumer profitability for Disney. He also expects reductions within its promotional budget and selling, general and administrative expenses to hinder direct-tot-consumer gross additions, adding that a price hike this year will pressure even the ad-free tier. — CNBC’s Michael Bloom contributed reporting.
