NBA Rights Renewal Crucial for Walt Disney and Warner Bros, According to Macquarie Research

By Sam Boughedda

In recent communications with clients, analysts from Macquarie have revised their price target for Walt Disney down to $110 from $120 while maintaining an Outperform rating on the stock. They have also kept their Outperform rating and set a price target of $16 per share for Warner Bros. Discovery.

The analysts emphasized the importance of direct-to-consumer (DTC) strategies and the renewal of NBA broadcasting rights for Warner Bros. Discovery in 2023.

They noted, "We are adjusting our estimates due to anticipated advertising revenue declines of 15% in Q4, which may extend into Q1 and Q2. Warner Bros. Discovery’s performance in Europe may also lag behind peers, with networks possibly not showing growth in revenue but maintaining over 40% adjusted EBITDA margins." The analysts believe that getting the DTC strategy right is crucial and that HBO and Discovery+, backed by the Warner Bros. studio library, are positioned among the top streaming services with significant global potential.

Regarding the NBA contract renewal, they described it as potentially the most significant development of the year. "We expect the league to demand at least a twofold price increase, similar to the NFL’s negotiations in 2023, and we believe Warner Bros. Discovery can accommodate this," they stated. They referenced Time Warner’s previous NBA deal in 2016, where the annual average rights cost represented 11% of Turner networks’ revenue, or 7% of Turner plus HBO. "Doubling that rights fee on the new Warner Bros. Discovery linear networks and linear plus DTC would reflect comparable ratios in 2025, coinciding with the start of the new NBA deal. We hope the new rights will include significant streaming availability and international options, capitalizing on Warner Bros. Discovery’s global reach and the NBA’s popularity."

For Disney, the analysts expressed optimism that the stock could rebound if the company adheres to its plan for DTC profitability, while the renewal of NBA rights could shape ESPN’s streaming future.

They noted that CEO Bob Iger’s major legacy may be tied to the direction of ESPN, stating, "We are uncertain if the figures support EPSN transitioning from the linear bundle to a completely DTC model, but the upcoming NBA renewal may bring ESPN closer to that possibility."

Lastly, the analysts have modestly revised their fiscal year 2023 earnings per share estimates from $4.31 to $4.21, and for 2024, from $5.86 to $5.69, attributing these changes to lower near-term advertising growth projections.