Story Stocks^®

Walt Disney's (DIS) magical touch returned in 4Q24, thanks to another swing higher in profitability for DTC Streaming and a banner quarter for the theatrical film business in which CEO Bob Iger called "one of the best quarters in the history of our film studio." Although it's still contending with macro-related headwinds, the theme park business also performed better than anticipated, contributing to DIS's earnings beat and bullish outlook for FY25 that calls for high-single-digit EPS growth.

• After generating its first operating profit in its short history last quarter, all eyes were on DTC Streaming this quarter to see if the unit could continue to build off of that milestone achievement. Bolstered by price hikes for Disney+ and Hulu, subscriber growth, and lower marketing costs at Disney+, DTC Streaming did indeed keep the momentum going with operating income growing to $321 mln from $47 mln last quarter.
• While subscriber growth for Disney+ has cooled substantially, partly due to those steady price hikes, the streaming service continues to add subscribers at a better-than-expected pace. In Q4, Disney+ Core subscribers grew by 4% to $122.7 mln, easily exceeding analysts' estimates and representing an acceleration from Q3's growth of 1%. DIS did warn of a modest qtr/qtr decline in Q1 Disney+ subscribers, but the company has been exceeding its conservative guidance on this metric recently.
• Overall, the Entertainment segment delivered exceptional results as revenue increased by 14% to $10.8 bln and operating income surged by 352% yr/yr to $1.07 bln. The huge turnaround in profitability for DTC is playing a significant role here, but like last quarter, the star of the show was DIS's film studio business. Fueled by two blockbuster hits -- Inside Out 2 and Deadpool & Wolverine -- revenue in Content Sales/Licensing jumped by 39% yr/yr to $2.59 bln, helping operating income swing into positive territory at $316 mln compared to $(149) mln in the year-earlier period.
• What's really adding fuel to the fire for DIS shares is the company's outlook, particularly for Entertainment. Specifically, DIS is forecasting double-digit operating income growth for FY25 as Entertainment DTC's (which excludes EPSN+) operating income improves by $875 mln compared to FY24.
• Turning to Experiences, the slowdown in domestic leisure travel demand, coupled with a downturn in the international theme park business, weighed on Q4 results. Operating income fell by 6% yr/yr to $1.66 bln, which was essentially in line with DIS's guidance of a mid-single-digit decline for Q4. However, the company had good news to share here, too. During the earnings call, CEO Bob Iger commented that DIS saw a strengthening in the consumer and that he expects that trend to continue into 2025, benefitting the theme park business.
• On that note, DIS guided for operating income growth of 6-8% for Experiences, with that growth weighted towards 2H25. Hurricanes Helene and Milton will impact operating income by about $130 mln in Q1, but attendance and per capita spending trends are both moving in the right direction. Additionally, following a 32% plunge in Q4 operating profit for international parks that was partly due to the Paris Olympics, DIS expects demand to recover at both Disney Paris and Disney Shanghai.

It's difficult to cover all of the bases with DIS since there's always so much happening at the entertainment and media giant. In addition to everything noted above, the company also said that it plans to increase its quarterly dividend and to buy back $3 bln in stock in FY25. The bottom line is that while there are still some pockets of weakness, including the struggling linear cable business, DIS has struck the right balance between growth and profitability, and that is being reflected in the stock's sizable gains today.