Disney shares are under pressure Wednesday after the entertainment giant reported mixed quarterly results. We expect it’s a chance. Revenue within the three months ended June 28 increased 2% yr over yr to $23.65 billion, missing expectations of $23.73 billion, in line with LSEG. Adjusted earnings per share (EPS) within 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 greater than 3% in early afternoon trading. Shares entered the day up just a little over 6% yr so far, barely 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 the same story under the hood. Nevertheless, as we dug deeper into the outcomes, we see strength in all of the parts of the business that matter most. In that way, there’s rather a lot to love: Its direct-to-consumer streaming business continues so as 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 barely year-over-year, we expect management is executing on a roadmap that can see the important thing business return to growth. An enormous a part of that may be a premium ESPN streaming offering set to launch later this month with features which 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 primary time. Its highly profitable experiences segment was the standout, outpacing expectations for each sales and earnings. Walt Disney World in Florida reported record third-quarter revenue, and the cruise business is “doing extremely well straight away,” CFO Hugh Johnston said on the decision. “Forward bookings look great, and we’re running at very high occupancies by way of the cruise ships. When it comes to occupied with bookings for experiences for the fourth quarter, straight away, they’re up about 6%. So, we actually 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 imagine there’s more upside within the stock as management cuts costs, expands profit margins through its direct-to-consumer (DTC) products and finds recent ways to monetize ESPN. Competitors: Comcast , Netflix , Warner Bros Discovery and Paramount Global Last buy: March 10, 2025 Initiation: Sept. 21, 2021 Ultimately, we imagine the House of Mouse is standing on strong ground, and members will likely be well-served by benefiting from this weakness. Demand for the Disney experience stays strong, with park-goers continuing to flock to the Florida resort in record numbers despite the opening of Universal’s Epic Universe in Orlando through the quarter (CNBC’s parent company Comcast owns Universal). That clearly didn’t dent demand. Meanwhile, Disney’s sports streaming offering goes through a significant renaissance that we expect ultimately drives deeper engagement and complements its broader strategy on bundling . A part of that involves more deeply integrating Disney+ and Hulu content now that it owns the whole lot of Hulu. The premium ESPN service will likely be an exciting recent layer, offering cross-selling opportunities as consumers are given the chance to bundle a best-in-class sports and entertainment offering. We’re due to this fact upgrading Disney shares to a buy-equivalent 1 rating and are increasing our price goal to $135 apiece from $130. On Wednesday’s Morning Meeting, Jim Cramer suggested that investors who wish to amass, say, a 100-share stake in Disney can buy 50 shares now and construct it up from there. Commentary While the chart above clearly shows mixed results, the strength got here where it matters most, as discussed above. Inside Disney’s larger entertainment segment, direct-to-consumer is the first focus for investors. Although revenue was a bit light, its operating income was improbable, 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 within the quarter, exiting with 128 million total subscribers. Disney+ and Hulu exited the quarter with 183 million subscriptions, a rise of two.6 million versus the prior quarter. On the earnings call, CEO Bob Iger said Hulu was being fully integrated into Disney+. “It will create a formidable package of entertainment pairing the very best 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 approaching months, we will likely be implementing improvements inside the Disney+ app, including exciting recent features and a more personalized homepage. All of which can culminate with the unified Disney+ and Hulu streaming app experience that will likely be available to consumers next yr.” The performance of Disney’s linear networks — including the likes of ABC, Freeform, FX and its namesake Disney channel — was lackluster, however the cord-cutting dynamic is well understood on Wall Street. In consequence, investors could be higher served by a long-term focus that prioritizes the expansion of DTC somewhat than the linear network woes. Disney’s sports segment is all about ESPN and its ongoing revitalization efforts. Earlier Wednesday, we learned that ESPN’s recent streaming service will launch on August 21, include all content from the linear TV networks and value $29.99 a month. “The improved ESPN app will likely be a sports fan’s dream, with key recent features planned for launch, corresponding to multi-view enhanced personalization, integration of stats, betting, fantasy sports and commerce, and a personalised SportsCenter,” Iger said on the decision. “And fans with subscriptions to the Disney+, Hulu, and ESPN bundle will give you the chance to observe ESPN content directly inside Disney+.” We also learned Wednesday that the streaming platform has inked 5-year cope with WWE to steam the latter’s premium wrestling events. Select events may even air on ESPN’s linear channel. On Tuesday evening, it was announced that ESPN has reached a cope with the NFL for media assets, in exchange for a ten% stake in ESPN. Clearly management is trying to launch the brand new ESPN streaming service with a bang, and its decision to supply a special bundle price for the primary yr — $29.99 a month for Disney+, Hulu and ESPN — should provide a pleasant boost to overall subscriber numbers. There was plenty to love with Disney’s experiences performance. Specifically, domestic parks and experiences business saw a 22% growth in operating income. That was fueled by guests spending extra money at its theme parks in Florida and California, coupled with positive contributions from the launch of the Disney Treasure in the primary quarter of the yr. With that ship now in its fleet, Disney saw higher passenger cruise days and better occupied room nights. Iger offered updates on Disney’s major investments to expand its theme parks. “Expansion projects are underway across every one in all our theme parks globally from a brand new World of Frozen land opening at Disneyland Paris in 2026 and to the Villains and Cars themed areas at Magic Kingdom to a Monsters Inc. area at Disney’s Hollywood Studios to an Avatar themed destination at Disney California Adventure, along with a brand new theme park coming to Abu Dhabi,” Iger said. The Abu Dhabi project was announced in May on the day of second-quarter earnings. Iger also noted that two more ships are on the right track to be added to Disney’s cruise fleet later this yr: The Disney Destiny and the Disney Adventure, which is its “largest ship ever and the primary to be docked in Asia, bringing our fleet to a complete of 8 cruise ships operating across the globe,” he said. Guidance Disney increased its 2025 guidance as follows: Now targeting adjusted EPS of $5.85, up from $5.75, which could be an 18% increase compared with the prior fiscal yr. The Street was on the lookout for full yr earnings of $5.78 per share. Direct-to-consumer operating income of $1.3 billion, compared with roughly $1 billion previously. Experiences operating income to extend 8%, up from prior guidance to be grow between 6% and eight% yr over yr. Disney Cruise Line preopening expense of $185 million, lower than the $200 million previously forecast. Equity loss from its three way partnership in India is now expected to be about $200 million, down from the previous call for a lack of about $300 million. The next was reaffirmed: Entertainment operating income up a double-digit percentage versus the prior yr. Sports operating income up 18% yr over yr. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) 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