Disney rips above the 200-day MA after beating expectations, providing upbeat L-T outlook
2min read Disney’s Q3 earnings report surpassed Wall Street expectations on both EPS and revenue, fueling an early premarket high of +5%. Adjusted EPS came in at $1.14, beating the $1.10 forecast and showing a significant 39% year-over-year growth. Revenue rose 6.3% to $22.57 billion, exceeding the $22.47 billion estimate and driven by strong performance in several key segments, including entertainment and direct-to-consumer (DTC) streaming. Operating income also saw a notable 23% rise year-over-year to nearly $3.7 billion, with gains in DTC and core entertainment operations.
The linear networks segment reported declines in domestic and international operations, impacted by higher marketing costs due to more season premieres and lower affiliate and advertising revenue, attributed to decreased viewership. Domestically, affiliate revenue was affected by fewer subscribers, partially offset by improved rates, while ad revenue fell due to lower impressions. Internationally, affiliate and advertising revenues also declined, coupled with increased marketing expenses.
Disney’s DTC streaming segment, which includes Disney+, Hulu, and ESPN+, achieved an operating profit of $321 million. Subscription revenue grew thanks to higher rates and a slight increase in subscriber counts, with Disney+ Core subscribers reaching 122.7 million, above the 119.85 million estimate. While Disney+ ARPU slightly missed estimates, Hulu and Live TV subscribers met expectations, highlighting steady growth. Lower marketing costs and increased advertising impressions contributed to improved profitability in the streaming segment.
In entertainment, revenues reached $10.83 billion, rising 14% year-over-year and surpassing the $10.66 billion forecast. Operating income jumped to $1.07 billion from $236 million in the prior year, despite falling slightly short of the $1.16 billion target. The gains were driven by content sales, licensing, and successful releases like Pixar’s Inside Out 2 and Marvel’s Deadpool & Wolverine, which contributed $316 million in operating income in Q4 alone. Advertising revenue also saw a 14% increase, particularly in DTC entertainment.
Sports was relatively mixed, with revenue at $3.91 billion, marginally missing the $3.95 billion estimate. ESPN saw 7% ad revenue growth but faced challenges from increased college football programming costs and fewer NFL games aired this quarter. Sports unit operating income declined 5% year-over-year to $929 million, aligning closely with the $904.4 million estimate. Subscription revenues improved due to rate increases, but viewership dips and rising production costs weighed on the segment.
The Experiences segment, encompassing parks and consumer products, achieved record annual performance despite a 6% quarterly operating income decline to $1.66 billion, matching estimates. Domestic parks benefitted from higher guest spending, while international parks struggled with reduced attendance and higher costs due to new offerings and increased depreciation. Disney Cruise Line also added expenses ahead of new launches.
Disney’s guidance for the next few fiscal years was robust. For 2025, Disney forecasts high single-digit adjusted EPS growth, targeting about $15 billion in cash from operations, $8 billion in capital expenditures, and a $3 billion buyback. The company expects double-digit segment operating income growth in entertainment, with DTC profit increasing by $875 million. For sports, they project 13% growth, excluding some India-related impacts, and 6%-8% gains in experiences.
Long-term, Disney maintains a favorable outlook. In fiscal 2026, the company aims for double-digit growth in both adjusted EPS and operating cash flow, projecting entertainment DTC operating margins of 10% and continued robust growth in the experiences segment. By fiscal 2027, Disney expects ongoing double-digit EPS growth, underscoring management’s confidence in its strategic initiatives across streaming, content production, and theme parks.
Key drivers for Disney include cost management in DTC, targeted subscriber and ARPU improvements, strategic content investments, and operational efficiency in parks and experiences. With management’s clear targets and positive market reception, Disney is positioned to capitalize on its diverse revenue streams, though challenges in linear networks and international experiences may require careful navigation.
Shares of DIS are reacting favorably to the news as the stock has ripped above the 200-day MA. This marks a six month high for the name. A smooth ride to $120 into the end of the year appears likely.
