Disney shares are under pressure Wednesday after the entertainment giant reported mixed quarterly results. We think it’s an opportunity. Revenue in the three months ended June 28 increased 2% year over year to $23.65 billion, missing expectations of $23.73 billion, according to LSEG. Adjusted earnings per share (EPS) in the fiscal 2025 third quarter totaled $1.61, outpacing the LSEG consensus of $1.47. On an annual basis, adjusted EPS jumped 16%. The stock dropped more than 3% in early afternoon trading. Shares entered the day up a little over 6% year to date, slightly trailing the S & P 500. .SPX YTD mountain Disney’s year-to-date stock performance. Bottom line This wasn’t the cleanest quarter. Disney’s headline revenue and profit numbers were mixed, and it’s a similar story under the hood. Nevertheless, as we dug deeper into the results, we see strength in all the parts of the business that matter most. In that way, there’s a lot to like: Its direct-to-consumer streaming business continues to add subscribers and reported significantly better-than-expected profitability. The sports segment also reported better-than-expected profitability, and while ESPN revenue did decline slightly year-over-year, we think management is executing on a roadmap that will see the key business return to growth. A big part of that is a premium ESPN streaming offering set to launch later this month with features that have the potential to drive deeper engagement over time. Those include increased personalization and fantasy sports, alongside the ESPN suite of cable channels available on streaming for the first time. Its highly profitable experiences segment was the standout, outpacing expectations for both sales and earnings. Walt Disney World in Florida reported record third-quarter revenue, and the cruise business is “doing extremely well right now,” CFO Hugh Johnston said on the call. “Forward bookings look great, and we’re running at very high occupancies in terms of the cruise ships. In terms of thinking about bookings for experiences for the fourth quarter, right now, they’re up about 6%. So, we certainly feel positively about that as well.” Disney Why we own it: We value Disney for its best-in-class theme park business, which has immense pricing power. We also believe there’s more upside in the stock as management cuts costs, expands profit margins through its direct-to-consumer (DTC) products and finds new ways to monetize ESPN. Competitors: Comcast , Netflix , Warner Bros Discovery and Paramount Global Last buy: March 10, 2025 Initiation: Sept. 21, 2021 Ultimately, we believe the House of Mouse is standing on strong ground, and members will be well-served by taking advantage of this weakness. Demand for the Disney experience remains strong, with park-goers continuing to flock to the Florida resort in record numbers despite the opening of Universal’s Epic Universe in Orlando during the quarter (CNBC’s parent company Comcast owns Universal). That clearly didn’t dent demand. Meanwhile, Disney’s sports streaming offering is going through a major renaissance that we think ultimately drives deeper engagement and complements its broader strategy on bundling . Part of that involves more deeply integrating Disney+ and Hulu content now that it owns the entirety of Hulu. The premium ESPN service will be an exciting new layer, offering cross-selling opportunities as consumers are given the opportunity to bundle a best-in-class sports and entertainment offering. We’re therefore upgrading Disney shares to a buy-equivalent 1 rating and are increasing our price target to $135 apiece from $130. On Wednesday’s Morning Meeting, Jim Cramer suggested that investors who want to amass, say, a 100-share stake in Disney should buy 50 shares now and build it up from there. Commentary While the chart above clearly shows mixed results, the strength came where it matters most, as discussed above. Within Disney’s larger entertainment segment, direct-to-consumer is the primary focus for investors. Even though revenue was a bit light, its operating income was fantastic, coming in well ahead of expectations. It’s clear that the DTC business has turned the corner and is now very much a money making business. Disney+ added 1.8 million subscribers in the quarter, exiting with 128 million total subscribers. Disney+ and Hulu exited the quarter with 183 million subscriptions, an increase of 2.6 million versus the prior quarter. On the earnings call, CEO Bob Iger said Hulu was being fully integrated into Disney+. “This will create an impressive package of entertainment pairing the highest caliber brands and franchises, great general entertainment, kids programming, news and industry-leading live sports content, all in a single app.” He added, “over the…
Read More: We’re upgrading our rating on Disney thanks to a misguided market reaction to