Wells Fargo analyst Steven Cahall proposes a radical shift for Disney: exiting the direct-to-consumer streaming business, including Disney+, and reverting to a wholesale content and licensing model. Cahall contends that such a move would remove the expensive distribution layer of Disney+, potentially unlocking over $15 billion in annual licensing revenue by fiscal year 2028. He estimates this transition could add approximately 10% to Disney's earnings per share, translating to more than $9 per share, and de-risk EPS while sharpening management's focus on intellectual property and the Experiences business.
Cahall, while maintaining an "Overweight" rating on Disney shares, lowered his near-term price target from $146 to $125. This adjustment is attributed to broader macroeconomic pressures and minor revisions to box office assumptions. Despite the lowered target, Cahall emphasizes Disney's substantial "self-help" options that could significantly improve its valuation over time, including the potential for a roughly 40% increase in share price if his proposed strategy is adopted.
To illustrate the potential upside, Cahall points to industry comparisons, such as Sony's pay-1 movie deal, which generates over $1 billion annually. He argues that Disney's stronger box office profile could command roughly three times Sony's figure for global pay-1 rights, implying nearly $4 billion from that window alone. The analyst also forecasts that a licensing-heavy model could push aggregate annual licensing income beyond the $15 billion mark, especially with the inclusion of pay-2 windows and Disney's extensive content library. This contrasts starkly with the projected 13% operating income margin for a direct-to-consumer platform by fiscal year 2027.
