It has been a lost decade for the entertainment giant. But with TV declines baked in and growth improving, the stock is ready for a new era. By Jack Hough
Walt Disney shareholders are coming off a lost decade. The stock, at a recent $121, is trading where it was on Aug. 4, 2015. On that day, the company lowered forecasts for its financial results, citing ongoing subscriber losses at ESPN. The cable sports network was Disney's biggest moneymaker at the time, even if the public associated the company more with Mickey Mouse, roller coasters, and superhero movies. Shares lost 9% in a day. Discovery, Time Warner, Viacom, Fox, Comcast, and CBS tumbled, too. Consumers had been leaving pricey cable television bundles for streaming for years, but if ESPN was now vulnerable, so was the entire traditional television economy.
Today, Disney appears more resilient -- not because ESPN has held the line, but because it is diminished enough to reduce the risk of further declines. There is a new ESPN streaming service launching soon. The core of Disney's streaming business is profitable and growing. Movies are slumping, but there are dependable box-office performers coming. Theme parks are mostly bustling. Disney, not for the first time in its history, is transforming. "It was a media company that owned theme parks," says Morgan Stanley analyst Benjamin Swinburne. "Now it's a theme park company that owns media assets."
Wall Street is overwhelmingly bullish, with more than three-quarters of analysts who cover Disney stock recommending a purchase. That's higher than the percentage who like Netflix. Careful, there. Disney was the more popular of the two stocks on Wall Street a decade ago, too. Since then, Netflix has returned 955%, versus 253% for the S&P 500 index, while Disney, including dividends, has eked out 10%.
But those figures include signs of life from Disney shares lately. They have returned 38% in a year, beating the S&P 500 by 19 points. The stock has returned a total of 45% since Barron's last featured Disney on its cover in July 2023, beating the index by three percentage points over that period.
If that's the start of a larger revival, it's not because Disney stock is particularly cheap. It goes for 21 times projected earnings for the company's current fiscal year running through September, only slightly below the broader market.
But after years of diminished profits, the outlook for growth is now bright enough.
Disney won't catch up with Netflix in streaming on any timeline that is relevant to investors, and in the long run, both might be vulnerable to Alphabet's YouTube. But Disney is also in better shape than the rest of Hollywood, thanks to its flourishing theme parks and a shot at success in streaming. For now, continued double-digit yearly stock returns look feasible.
Theme parks got Disney into TV, you might say. Founder Walt Disney dreamed up Disneyland while sitting on a Los Angeles park bench watching his young daughters play on a merry-go-round. But his animated film business needed help to cover what would ultimately be a $17 million construction bill. So in 1954, a year before the park opened, Walt cut a deal with his industry's rising competitor, TV. He would make a show called Disneyland, and later The Mickey Mouse Club, for ABC, in exchange for funding and on-air promotion. Three decades later, Disney embraced TV's thriving new pay model when it launched the Disney Channel on cable. But there was a much bigger move coming.
In 1995, Disney surprised Wall Street by announcing that it would buy the parent company of ABC for $19 billion, then the second-largest corporate takeover. A recent regulatory change meant that networks were no longer prohibited from owning their prime time shows. The deal brought ABC's 80% stake in ESPN, along with ABC head Bob Iger, who would become Disney's CEO in 2005.
Last fiscal year, linear networks, as traditional broadcast and cable are now called, contributed 22% of Disney's operating profit. But they once brought in close to half. The economic miracle of cable TV was that customers would pay for programming and endure advertising. ESPN's audience skews young and watches live, making it particularly attractive to advertisers. And since networks collect fees from cable bundlers, not customers directly, the cost is borne by all households, not just those that watch sports. ESPN became the priciest channel in the cable bundle and easily the biggest contributor to Disney's TV profits.
"I would sit with portfolio managers...and they'd say, 'Oh, I love Disney,' and I'd say, 'Why do you like Disney?' and they're like, 'Oh, it's just a fantastic media conglomerate,'" says Citigroup analyst Jason Bazinet. "I used to say back, 'No, it's ESPN masquerading as a well-run media conglomerate.'" But a cash cow can fix a lot of problems. Two decades ago, Disney was a broken movie studio with tired theme parks. ESPN's profits played no small part in funding Iger's acquisitions of Pixar in 2006, Marvel Entertainment in 2009, and Lucasfilm in 2012, setting up the biggest box-office boom in history, and fueling no end of theme park tie-ins and expansions. "A bad media conglomerate became a good media conglomerate," says Bazinet.
Now theme parks are the cash cow. Last year, Disney's Experiences division, which includes its parks, turned in a record operating profit of $9.3 billion. That's 59% of the company's total operating profit of $15.6 billion. This year, the Experiences unit is expected to earn 8% more, thanks in part to the launch of two new cruise ships. The company recently announced distant plans for a new park in the United Arab Emirates, which could boost its brand throughout the region.
For now, if Disney has pushed theme park prices too high; or if a new Universal park in Orlando is luring away Magic Kingdom visitors; or if macroeconomic fears are hitting vacationers; or if the "go woke, go broke" movement is keeping visitors away, it isn't especially evident in park financial results.
Movies, however, have become meager earners. A live-action Snow White remake this year flopped. A Pixar release called Elio did so poorly that moviegoers might not even realize that it came and went in June. Then again, a May live-action remake of the animated 2002 film Lilo & Stitch performed beautifully. Morgan Stanley's Swinburne has a simple explanation for weak theater results for Disney and others: too few releases.
The pandemic halted movie production. Then studios diverted films from theaters to streaming. And then Hollywood had strikes in 2023. Next year is likely to bring the most releases since before the pandemic, and Swinburne is predicting $11 billion in North American box office receipts, close to the 2019 haul. Disney's slate features The Fantastic Four in late July, a new Avatar near Christmas, a new Toy Story next summer, and the return of the Avengers near Christmas 2026.
Disney's high-water mark for companywide operating profit was set at $15.7 billion back in fiscal 2016, and was nearly matched in 2018, before traditional TV's decline accelerated. The low point since then was $7.8 billion in 2021, when parks were running pandemic losses and the ramp-up of the Disney+ streaming service was burning through cash. Last year, Disney's operating profit rose 21% to $15.6 billion, as streaming turned from losses to a negligible profit. This year, Wall Street is predicting a further 12% increase to $17.5 billion, finally blowing past the record. Over the next three years, Disney could tack on an additional $5 billion in yearly operating profit.
This will come mostly from two sources: steady growth from a large base of profit in Experiences, and rapid growth from a small base in Direct to Consumer, as Disney calls streaming. Even so, Disney's streaming in a few years will produce only perhaps a fifth of the operating profit of Netflix. That is reflected in Netflix having more than double the stock market value of Disney.
"They're not industry-leading and they're not industry-lagging," says Citi's Bazinet, of Disney's streaming efforts. "They're sort of just stuck." He calls Netflix a true pay TV substitute, because it has high daily customer usage for the price. He compares Peacock TV and HBO Max, which get less usage for the price, to the old HBO; customers might watch a few shows and then cancel. Disney is squarely in the middle. Back when Netflix burned cash for a decade in streaming, interest rates were exceptionally low, and investors cheered.
When Disney went all in on streaming, it briefly basked in the same glow. As profits plunged, the stock hit a record high price above $200. Then rates jumped, and investors demanded profits. Netflix was far enough along on its growth that it could easily fund vast content investments from its cash flow. But most of the others have been left more constrained. "A lot of these streaming services are sort of half-pregnant," says Bazinet. "They sort of didn't run the distance to become a pay TV substitute."
Much of media looks worse off than Disney. Shares of Paramount Global, formed when Viacom merged with CBS, are down 70% over the past decade, and the controlling family is pursuing an unpopular sale. Warner Bros. Discovery, down nearly 50% since it began trading in 2022, is splitting its cable networks from its studios and streaming. Comcast, which has made 43% over the past decade, mostly from dividends, has prospered in theme parks while struggling in TV, and faces rising competition from telecom companies for its cable broadband hookups. It's expected to produce minimal operating profit gains in the years ahead.
At Disney, Iger's current CEO contract runs through the end of 2026. Josh D'Amaro, the Experiences chief, is a likely successor. Other speculated-about names include Alan Bergman and Dana Walden, who have leadership positions in entertainment, and James Pitaro, who runs ESPN.
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July 25, 2025 21:30 ET (01:30 GMT)
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