Disney's Strong Q1 Earnings Reinforce Investor Optimism

Disney (DIS) delivered a robust fiscal first-quarter earnings report, surpassing Wall Street expectations on both earnings per share (EPS) and revenue. Adjusted EPS came in at $1.76, well above the $1.42 consensus estimate and a significant improvement from $1.22 in the prior year. Revenue increased 4.8% year-over-year to $24.69 billion, slightly ahead of the $24.57 billion estimate. The company's total operating income surged 31% to $5.1 billion, reflecting strength across several business segments, particularly entertainment and sports. However, streaming subscribers saw a modest decline, with Disney+ total subscribers falling by 1% to 124.6 million. Despite the slight dip in subscribers, the results appear strong enough to support the recent stock rally, with key support levels at $112 in focus.

Key Drivers Behind Disney’s Performance

Disney’s entertainment segment was a major growth driver, with operating income nearly doubling to $1.7 billion, up 95% year-over-year. Direct-to-consumer (DTC) streaming, which includes Disney+, Hulu, and ESPN+, generated an operating profit of $293 million, a dramatic turnaround from previous losses. However, the DTC segment faced some headwinds, with advertising revenue declining 2%, although it would have increased 16% excluding the impact of Disney+ Hotstar in India. The sports segment also delivered a strong performance, posting operating income of $247 million compared to a $103 million loss a year earlier, driven by robust ESPN ad revenue, which rose 15%. Meanwhile, the experiences segment, which includes theme parks and cruises, reported $3.1 billion in operating income, a modest 0.2% increase as hurricanes and pre-opening cruise costs weighed on growth.

Forward Guidance and Strategic Outlook

Disney reaffirmed its outlook for high-single-digit adjusted EPS growth in fiscal 2025, in line with analyst expectations of an 8.1% increase. The company maintained its forecast for $15 billion in operating cash flow, supporting long-term strategic investments. Entertainment operating income is projected to grow by a double-digit percentage, with an expected increase of approximately $875 million for the DTC business. The sports segment is anticipated to grow operating income by 13%, slightly above consensus expectations. The experiences division is expected to grow between 6% and 8%, reflecting continued strength in travel and leisure demand. The company also highlighted a $200 million pre-opening expense related to the upcoming launch of the Disney Treasure cruise ship. Additionally, Disney expects a $300 million equity loss due to the deconsolidation of Star India.

Streaming Trends and Market Positioning

Disney’s streaming business showed resilience despite a slight subscriber decline. Domestic Disney+ subscribers rose to 56.8 million, exceeding the 55.67 million estimate, while international subscribers totaled 67.8 million, also ahead of projections. Hulu saw subscriber growth, reaching 53.6 million, surpassing expectations. However, Hulu’s subscription video-on-demand (SVOD) average revenue per user (ARPU) came in at $12.52, below the $12.84 estimate, reflecting competitive pricing pressures. Hulu Live TV and SVOD ARPU increased to $99.22, slightly above expectations. Looking ahead, Disney expects a modest sequential decline in Disney+ subscribers in Q2. The company continues to refine its streaming strategy, including the integration of an ESPN tile into Disney+, a move aimed at boosting engagement.

Market Reaction and Technical Considerations

Disney’s stock had rallied approximately 9% leading into the earnings report, reflecting strong investor confidence. Early premarket reactions saw shares gaining about 1%, though they later pared back to a 0.5% increase. Holding above the key $112 level will be crucial in determining whether the rally has legs. With improving fundamentals, particularly in streaming profitability and strong sports and entertainment performance, Disney appears well-positioned for continued momentum. However, market conditions, including broader concerns about consumer spending and macroeconomic uncertainty, could impact investor sentiment in the coming quarters.