Disney’s fourth-quarter revenue grew 6% to $22.6bn. In the Entertainment division, declines in linear (traditional) networks were more than offset by double-digit growth in direct-to-consumer content, which includes Disney’s streaming brands. Experiences, which included theme parks, rose by just 1%.
Operating profit rose 23% to $3.7bn, ahead of market expectations. Subscriber growth and increased advertising revenue helped profits more than quadruple in the Entertainment division. This offset mid-single-digit declines in the Sports and Experiences divisions.
Free cash flow rose 18% to $4.0bn, due to much higher levels of cash being generated by the business. Net debt rose from $32.2 to $39.8bn.
Disney expects underlying earnings per share (EPS) to grow at a high single-digit rates in 2025, before accelerating to double-digit rates for both 2026 and 2027. The group plans to complete $3bn of share buybacks this financial year.
The shares rose 7.0% in pre-market trading.
Our view
Disney’s fourth-quarter profits landed ahead of market expectations, driven by strong growth in direct-to-consumer entertainment.
Growth of Disney+ has been phenomenal and the service quickly emerged as a worthy opponent for industry titans. The part that gives Disney an edge is its pre-existing stable of intellectual property. It has a pre-loaded and pre-approved content cupboard. Disney is well-placed to capture demand. But every story has a villain.
Disney+ has grappled with eye-watering costs. Getting a streaming service off the ground is not a cheap undertaking. Nor is attracting customers, especially in the early stages. But with most of the groundwork now in place, operations are being streamlined. And new subscribers can be added with little additional cost, meaning any new subscription revenue largely flows straight down to the profit line.
The competitive landscape remains very tricky, so continued success will hinge on delivering new content to keep eyes on screens. Subscriber numbers are continuing to move in the right direction. While we admire Disney's position, consumers are fickle beings, and there's no guarantee Disney will reign supreme.
Streaming being a long-term success is important because Disney's broader media business is heavily exposed to traditional linear TV. Cable to you and me. We think the likes of ESPN is a great asset, especially its streaming potential, but the legacy industry is in structural decline.
Then there's the theme parks. These are another way for Disney to juice the same intellectual property for cash over and over again. We continue to think parks are a strong asset, with loyal fans likely to flock to the gates for years to come. But this part of the business is more likely to see peaks and troughs. A tough economic landscape will see families reduce spending, and we’re seeing signs of that weighing on performance.
At nearly $40bn, Disney is carrying a fair whack of debt. A lot of that's a hangover from the mega-merger with Fox. The group's improved and substantial free cash flow means we aren't overly concerned, but debt management could take precedence over the medium term and will need to be monitored.
There’s no denying it, Disney’s an excellent brand. But growth in the streaming business is likely to be the main driver of sentiment in the near-term. We’re happy profits are flowing in from this side of the business, but given the highly competitive landscape, we’d like to see more evidence of progress before getting too excited. And as always there could be ups and downs along the way.
Environmental, social and governance (ESG) risk
The media industry’s ESG risk is relatively low. Product governance is the key risk driver, alongside business ethics, labour relations and data privacy & security.
According to Sustainalytics, Disney’s management of ESG risk is average.
Disney’s audit committee oversees cybersecurity and data security risks, and detection processes are periodically tested. But it’s not disclosed whether privacy risk assessments or external security audits are conducted regularly.
Disney key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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