Disney Boosts Streaming Profits, Hikes Dividend — So Why Is the Stock Getting Smacked Lower Today?

Walt Disney’s latest quarter was another reminder that this is a company in the middle of a painful but very real transition. On the surface, the headline numbers looked fine: adjusted EPS of $1.11 beat expectations of roughly $1.05–$1.07, free cash flow hit $2.56 billion, and the company reiterated double-digit adjusted EPS growth for both fiscal 2026 and 2027. Underneath, though, a softer top line and a sharp drop in traditional entertainment profits have investors uneasy. Revenue slipped 0.5% year over year to $22.46 billion, missing the Street’s $22.76 billion estimate, and the stock is down about 4%, slipping back toward key support around the $110 area as the market digests another quarter of “good EPS, messy mix.”

Overall, fiscal 2025 still looks solid in aggregate. Full-year revenue rose 3% to $94.4 billion, total segment operating income climbed 12% to $17.6 billion, and adjusted EPS grew 19% to $5.93, giving Disney a three-year adjusted EPS CAGR of 19%. Income before taxes nearly doubled year on year to $12.0 billion, and operating cash flow jumped 30% to $18.1 billion, with free cash flow up 18% to just over $10 billion. Management leans hard on these full-year trends to argue the strategy is working, but the quarter-to-quarter mix is what’s bothering the tape.

The Entertainment segment is where the market’s discomfort starts. Segment operating income in Q4 fell 35% to $691 million, down $376 million from a year earlier, as traditional film and TV revenues slumped. Linear Networks took a hit from lower advertising tied to weaker viewership and a sharp drop in political ad spending, plus the loss of Star India contributions that helped last year’s numbers. Content sales and licensing were down 26%, as this year’s slate (The Fantastic Four: First Steps, The Roses, Freakier Friday and carry-over from Lilo & Stitch) couldn’t match the record theatrical performance of Inside Out 2 and Deadpool & Wolverine in the prior-year quarter. For a market that still thinks of Disney as an IP-and-box-office machine, that decline in entertainment profit is hard to ignore.

The bright spot inside Entertainment is streaming. Direct-to-Consumer revenue rose 8% year over year (even after a 2-point drag from the loss of Hotstar in the base), and DTC operating income jumped 39% to $352 million. For the full year, Entertainment DTC generated $1.3 billion in operating income, a $1.2 billion improvement from last year and a dramatic turnaround from the $4 billion operating loss just three years ago. Subscriptions for Disney+ and Hulu reached 195.7 million, up 12.4 million quarter over quarter, with Disney+ alone at 131.6 million (up 3.8 million). ARPU is inching higher, particularly internationally, as the company pushes pricing, bundles, and a unified Disney+ / Hulu app experience. Management is targeting a 10% operating margin for Entertainment DTC SVOD in 2026, underscoring that streaming is now a real earnings driver, not just a cash bonfire. The problem is that DTC strength is still being more than offset—at least quarter-to-quarter—by volatility in film and linear.

Sports is in a similar “strategically right, near-term noisy” bucket. Sports segment operating income was essentially flat for Q4 at $911 million, down just $18 million from the prior year. Domestic ESPN operating income slipped 3% as higher marketing and programming costs, including the launch of ESPN’s full direct-to-consumer service, overshadowed 8% advertising growth and better subscription and affiliate revenue. International ESPN improved on the back of higher effective affiliate rates. Viewership remains a genuine bright spot: ratings across ESPN networks were up 25% year over year in Q4, college football and Monday Night Football are having some of their best seasons in years, and the WNBA, MLB, and U.S. Open all posted record or multi-year-high audiences. Still, investors can see rising rights costs, a fragmented sports landscape, and fresh competition—like NBCUniversal’s new NBCSN sports channel—eating into the old cable sports moat just as ESPN is spending heavily to pivot to digital.

If you’re looking for clean strength, it’s Experiences. The Experiences segment delivered record Q4 operating income of $1.88–$1.9 billion, up 13%, and a record $10 billion for the full year, up 8%. Q4 revenue in Parks & Experiences grew 6% to $8.77 billion. International parks posted a 25% jump in operating income to $375 million, driven by higher attendance and spending at Disneyland Paris as it bounced back from Olympic-related headwinds. Domestic parks and experiences grew operating income 9% to $920 million, helped by Disney Cruise Line, where new ships like the Disney Treasure are adding capacity. Consumer products operating income rose 14%, powered in part by the continuing global merch juggernaut that is Stitch, with retail sales tied to the franchise surpassing $4 billion in fiscal 2025. Management sees high-single-digit operating income growth in Experiences in 2026, but warns that timing matters: pre-opening costs for two more ships (Disney Destiny and Disney Adventure) and higher dry dock expenses will weigh on the first half.

On guidance and capital allocation, the story is more straightforwardly positive. Disney reaffirmed its expectation for double-digit adjusted EPS growth in both fiscal 2026 and 2027, and expects to generate over $19 billion in operating cash flow in 2026. Content investment will rise to about $24 billion across Entertainment and Sports, and capex will increase to around $9 billion, driven largely by cruise expansion and new park attractions. Shareholder returns are getting a clear step-up: the board boosted the annual dividend to $1.50 per share from $1.00—a 50% hike—and doubled the 2026 share repurchase target to $7 billion from $3.5 billion in 2025. For income and value-oriented investors, those are strong signals that Disney sees its balance sheet and cash generation as robust enough to support both growth and capital returns.

So why is the stock down? First, the optics matter: a revenue miss, essentially flat Q4 segment operating income (down 5% to $3.5 billion), and a 35% plunge in Entertainment OI are hard to wave away, even with an EPS beat. Second, management explicitly flagged that Q1 2026 will be pressured by tougher theatrical comparisons (about a $400 million headwind to Entertainment segment OI), lower political ad revenue (a $140 million drag), and the absence of last year’s Star India contribution, while Experiences will absorb $150 million in pre-opening and dry dock costs. In other words, much of the promised 2026 growth is back-half loaded, which always raises execution risk. Third, the company is asking investors to look past heavier content and capex spending and focus on longer-term returns at a time when the market is already nervous about media economics and sports rights inflation.

In sum, this is a classic “good story, messy quarter” setup. Bulls will point to a 19% three-year adjusted EPS CAGR, a fully profitable and growing streaming business, record parks and experiences earnings, and a sharply higher dividend and buyback. Bears will focus on the revenue miss, the slump in traditional entertainment profits, the back-half-weighted guidance, rising spending commitments, and intensifying competition in sports and general entertainment. With the stock down about 4% and testing support near $121, the next move is likely to hinge on whether investors decide this is just another noisy step in Disney’s pivot—or a sign that the climb out of the old linear world is going to be longer and steeper than hoped.