Walt Disney turns a recovery corner

If shareholders of Walt Disney Co. felt better earlier this year as the company’s earnings finally perked up, they are celebrating now after the latest quarterly performance.

For the three months ended Sept. 30, Disney reported rising revenue and profit and offered a robust outlook for 2025. Its Disney+ streaming business has finally clicked and the Disney Movie Studio is churning out box office hits. In December it raised its dividend for the third time in a year Disney and plans to buy back US $3 billion in stock.

Disney shares jumped 6% Nov. 14 on the quarterly report and rose 6% more the following day. The shares are 23% higher in the last 12 months. The entertainment giant reported that revenue was up 6% year-over-year to US $22.6 billion, while net income rose 74% to $460 million. 

Investors are excited because the billions invested in Disney+ are finally paying off. Losses of $321 million in the same quarter last year shifted to a profit of $387 million. The film studio, meanwhile, is benefiting from two big hits this year with a strong pipeline next year.

Morningstar Research analyst Matthew Dolgin said in a note to clients he believes Disney has turned a corner. He believes it is successfully navigating the evolution from a cable television and pay-tv bundled model to one reliant on streaming services. He says Disney has unrivalled intellectual property and diversity in its businesses giving it an edge over its rivals.

Here’s an update:

Walt Disney Co. (NYSE: DIS ) Recent close US$114.34 (All figures in US dollars)

Background:  Walt Disney is a global entertainment company with annual revenues of $91 billion, known for its family-friendly live action and animated programming. It also owns theme parks, resorts and cruise ships. Disney’s TV assets include ABC, FX and National Geographic. Its film studios include 20th Century Fox, Pixar, and Lucasfilm.  

Performance: The shares are up 27% year-to-date.

Discussion: Disney’s theme parks and cruise lines are booming and its answer to the decline of cable TV has been the Disney+ streaming service launched in 2019 just before the pandemic. After spending billions to launch the service and invest in content Disney+ is now profitable. Disney is launch a full sports streaming service via ESPN in the fall of 2025 that offers more momentum.  

Streaming traction

 Disney+ added 4.4 million new customers in the quarter which was more than expected, bringing its total to 120 million customers. The service streams live action and animated movies and TV shows from Disney, Pixar, Marvel, Star Wars, and National Geographic. In addition, its Hulu service, streams popular TV shows. It has another 50 million subscribers.

ESPN Flagship is coming next year. It will offer live sports, in studio talk shows and sports betting. ESPN’s fortunes grew with cable TV, but cable’s decline has slowed that growth. Streaming opens new opportunities.

The company also issued guidance  for its entertainment streaming unit’s operating profit to increase $875 million in 2025.

Theme Parks & Cruise Lines thrive

This has been the company’s main engine since reopening, accounting for two-thirds of operating profit.

Disney is intensifying its effort in Asia with an expansion to its theme park in Shanghai and resort and adding new cruise ships. The investments are part of a 10-year plan to invest $60 billion in these areas.

 Traditional TV is challenged: Viewers continue to abandon cable TV. US cable TV subscriptions peaked in 2012 at 100 million households which has fallen to 60 million in 2024.  Disney’s top-tier networks, led by ESPN, ABC, and The Disney Channel are anchors of cable and Pay-TV services. As such they command premium rates. Fewer cable subscribers has lowered revenue and led to new agreements with cable companies. They continue to pay a premium to Disney, but in exchange for the right to offer Disney+ and ESPN+ to customers.

 Film Studio hits

 Walt Disney Studios include Disney, Walt Disney Animation, Pixar Animation, Lucasfilm, Marvel, Searchlight Pictures, and 20th Century Studios. They delivered two box office hits this year, the animated comedy Inside Out 2 and Deadpool & Wolverine, the latest in the Marvel superhero franchise. Inside Out grossed $1.7 billion globally this summer and has become the highest-grossing animated movie of all time. Deadpool and Wolverine grossed $1.3 billion globally, setting a record for an R-rated movie. There are high hopes for two more new releases by yearend, Moana 2 and Mufasa: The Lion King. 

 Dividend: Disney’s $0.45 dividend is paid semi-annually and yields 0.78%. The dividend was suspended at the start of the pandemic and reinstated this January. It was increased in July.

Disney made a big bet on a digital future which is now paying off. Its intellectual property is unrivalled and when coupled with its theme parks and resorts offers an attractive package.

  This article appeared in a recent issue of the Income Investor.  For information on how to reprint this article please view this page.