Disney's Q4 Earnings Surpass Estimates: How to Play the Stock

The Walt Disney Company DIS delivered a strong fourth-quarter performance for fiscal 2024, with adjusted earnings of $1.14 per share beating the Zacks Consensus Estimate by 4.59% and showing a robust 39% year-over-year increase. Revenues rose 6.3% to $22.5 billion, though slightly missing analyst expectations, demonstrating the company's continued momentum across its diverse business segments. (Read More: Disney Q4 Earnings Surpass Estimates, Revenues Increase Y/Y)

Streaming Success and Digital Transformation

Disney's direct-to-consumer segment showed remarkable improvement, turning a previous year's loss into a $253 million operating profit. The streaming service Disney+ grew its subscriber base to 122.7 million paid subscribers, adding 4.4 million new subscribers in the quarter. The platform's success, coupled with 14% growth in ad revenues, signals the strong execution of Disney's digital transformation strategy.

Entertainment Division Shines

The Entertainment segment delivered exceptional results, with operating income surging to $1.1 billion, marking an $800 million increase from the previous year. This impressive performance was driven by blockbuster releases including Pixar's Inside Out 2 and Marvel's Deadpool & Wolverine, which contributed to a $316 million operating income in Content Sales/Licensing.

Parks and Experiences: Mixed Results

While the Parks, Experiences and Products division showed some resilience with a 1% revenue increase to $8.24 billion, operating income declined 5.7% to $1.65 billion. Domestic operations performed well with 4.8% operating income growth, but international segments faced challenges with a 32.2% decline in operating income due to lower attendance and decreased guest spending.

Forward Guidance and Strategic Initiatives

Disney projects a robust growth trajectory with high-single digit adjusted EPS growth for fiscal 2025, supported by a planned $3 billion in stock repurchases and double-digit Entertainment segment operating income growth. The company's streaming division expects a substantial $875 million increase in operating income, despite a projected modest decline in first-quarter Disney+ Core subscribers. The Sports segment targets 13% operating income growth, while Experiences aims for an increase of 6-8%, weighted toward the second half. Looking further ahead, management confidently forecasts double-digit adjusted EPS growth for both fiscal 2026 and 2027, underpinned by strategic investments and operational efficiencies across all segments.

The Zacks Consensus Estimate for fiscal 2025 revenues is currently pegged at $95.03 billion, indicating 4.01% year-over-year growth. The consensus mark for fiscal 2025 earnings has moved north by 4.3% to $5.35 per share over the past 30 days, indicating 7.65% growth from the year-ago period.

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Shares of Disney have gained 25.8% year to date compared with the broader Zacks Consumer Discretionary sector’s growth of 10.8%.

Year-to-Date Performance

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Streaming Rivalry & Financial Pressure Cloud DIS' Outlook

Disney's anticipated modest growth in Disney+ Core subscribers in the fiscal first quarter 2025 reflects the intensifying competition from Netflix NFLX, Amazon AMZN-owned Amazon Prime Video and Apple AAPL-owned Apple TV+ among others and subscriber fatigue in the streaming space. The initial surge in Disney+ subscriptions has given way to a more challenging phase, as evidenced by the contrasting performance of rivals like Amazon and Netflix, which continue to see robust subscription growth.

The shifting landscape of content consumption has also raised concerns about the future of traditional movie-going experiences. Revenues from Linear Networks declined 6.4% year over year to $2.46 billion in the fourth quarter of fiscal 2024.

Additionally, the company's substantial borrowings of $45.81 billion, coupled with a limited cash position of $6 billion, pose financial challenges.

Disney is trading at a premium with a 3-year trailing 12-month P/S of 2.25X compared with the Zacks Media Conglomerates industry’s 1.11X, reflecting a stretched valuation.

DIS’s 3-Year P/S TTM Ratio Depicts Stretched Valuation

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Investment Perspective

For current investors, Disney's strong execution in streaming profitability, content creation and domestic parks operations supports maintaining positions. The company's clear strategic direction and robust content pipeline provide a solid foundation for future growth.

However, new investors might want to wait for a more attractive entry point. Several factors warrant caution, including challenges in international park operations, potential pressure on consumer discretionary spending, ongoing transformation costs in the streaming business and expected modest decline in Disney+ Core subscribers in the first quarter of fiscal 2025.

Conclusion

Disney's strong fourth-quarter results demonstrate the successful execution of its strategic initiatives, particularly in streaming and content creation. While current investors should stay invested to benefit from the company's long-term potential, prospective investors might find more attractive entry points in coming quarters as the company navigates near-term challenges and continues its transformation journey. The planned $3 billion stock repurchase program and projected double-digit adjusted EPS growth through fiscal 2027 underscore management's confidence in the company's future performance. Disney currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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