Disney's 11% Surge: A Tale of Exceeding Expectations and Long-Term Guidance

Disney shares surged over 11% at one point on Friday, December 6, 2024, following the release of its fourth-quarter financial results and a rare release of long-term guidance. The entertainment giant's stock price reached its highest level in more than six months, driven by strong financial performance and positive investor sentiment.

Disney's fourth-quarter earnings report, released on Thursday, November 14, 2024, exceeded Wall Street's expectations on both ends of the income statement. The company reported revenue of $22.574 billion, a 6% year-over-year increase, and adjusted earnings per share (EPS) of $1.14, slightly higher than the expected $1.1. Disney's net income increased to $460 million, or 25 cents per share, from $264 million, or 14 cents per share, during the same quarter last year. Adjusted for one-time items, Disney reported earnings per share of $1.14.



The entertainment segment, which includes the traditional TV networks, direct-to-consumer streaming, and films, saw a significant increase in revenue and operating income. Revenue for the segment increased 14% year over year to $10.83 billion, driven by the success of two blockbuster movies: "Deadpool and Wolverine" and "Despicable Me 2". The segment's operating income increased by more than 100% to $1.07 billion.

Disney's direct-to-consumer services, which include Disney+, Hulu, and ESPN+, saw a substantial improvement in profitability during the quarter. The streaming business brought in $321 million in revenue, compared to a loss of $387 million in the same period last year. Disney+ added more than 4 million "core" subscribers, bringing its total subscriber base to over 120 million. The company's direct-to-consumer (DTC) business revenue was $5.8 billion, a significant increase from the previous year.



Disney's sports segment, made up primarily of ESPN, saw flat revenue but a 6% decrease in profit due to higher programming costs and fewer cable bundle customers. The company's experiences segment, which includes theme parks and consumer products, saw a 1% increase in revenue to $8.24 billion. The domestic parks' operating income rose 5% to $847 million, helped by higher guest spending at the parks and cruise lines. However, the international parks' operating income fell 32% due to a decline in attendance and guest spending, as well as increased costs.

Disney's long-term guidance, which is rare for the company, included high-single-digit adjusted EPS growth in fiscal 2025, followed by double-digit growth in fiscal 2026 and 2027. The company expects a "modest decline" in Disney+ Core subscribers during the fiscal first quarter of 2025 compared with the prior quarter. However, the entertainment streaming business (excluding ESPN+) is expected to see an increase of roughly $875 million compared to the prior fiscal year and to increase by a double-digit percentage in its fiscal 2026.



Analysts have responded positively to Disney's strong financial performance and long-term guidance. The average analyst rating for Disney stock from 25 stock analysts is "Strong Buy," indicating that analysts believe this stock is likely to perform very well in the near future and significantly outperform the market. The average target price for Disney stock is $123.88, with a high estimate of $140 and a low estimate of $95. This suggests that analysts expect the stock to increase by 11.25% from the current stock price of $111.35, which is in line with Disney's projected high-single-digit adjusted earnings growth in fiscal 2025.

In conclusion, Disney's 11% surge in stock price is a result of strong financial performance in the fourth quarter, driven by the success of its entertainment segment and the improvement in profitability of its streaming media business. The company's rare release of long-term guidance, which aligns with analysts' expectations, has further boosted investor confidence and contributed to the stock's surge. As Disney continues to execute on its strategic initiatives and deliver strong financial results, investors can expect the company to maintain its momentum and continue to outperform the market.