To The Moon

$Walt Disney(DIS)$ recently reported its fiscal fourth-quarter earnings, narrowly beating analyst expectations. The entertainment giant posted adjusted earnings per share (EPS) of $1.14, surpassing the forecast of $1.10. Revenue came in at $22.57 billion, slightly above the expected $22.45 billion. Although these numbers suggest a modest improvement, my analysis suggests that the underlying issues with Disney remain unresolved, making it a challenging investment prospect moving forward.

Disney’s entertainment segment showed impressive growth this quarter, with revenue increasing by 14% year over year to $10.83 billion. The company capitalized on a strong box office performance over the summer, led by Pixar’s Inside Out 2, which became the highest-grossing animated movie of all time. Similarly, Deadpool & Wolverine set a new record as the highest-grossing R-rated film. Together, these films added $316 million in profit for the entertainment division, contributing to a total segment profit of nearly $1.1 billion.

However, while these box office successes have boosted earnings, the broader trends in the entertainment industry are still a cause for concern. Disney’s traditional TV network business continued its decline, with revenue dropping 6% to $2.46 billion. The profit for this segment fell 38%, primarily due to the ongoing shift from cable TV to streaming. This shift, while beneficial for Disney’s direct-to-consumer segment, does not fully offset the losses from the TV networks.

One bright spot for Disney this quarter was the performance of its streaming division, which includes Disney+, Hulu, and ESPN+. After posting its first-ever profit in Q3, Disney’s streaming business generated an operating income of $321 million in Q4, a sharp improvement from the $387 million loss during the same period last year. Subscriber growth was modest but positive, with Disney+ Core (excluding Hotstar) gaining 4.4 million subscribers to reach 122.7 million, while Hulu subscribers rose 2% to 52 million.

Despite this, the average revenue per user (ARPU) for domestic Disney+ customers declined slightly from $7.74 to $7.70. This dip is largely due to a higher mix of users opting for the cheaper, ad-supported tier. While the move towards ad-supported streaming might attract more price-sensitive customers, it could pressure ARPU in the long run, limiting the profitability upside. Disney has guided for a “modest decline” in Disney+ Core subscribers in Q1 of fiscal 2025, hinting at potential challenges in sustaining this momentum.

Disney’s experiences segment, which includes its theme parks, cruise lines, and consumer products, posted a modest 1% revenue growth to $8.24 billion. While domestic parks performed well, with a 5% increase in operating income driven by higher guest spending, the international parks faced a decline. Operating income for international parks fell 32%, hurt by lower attendance, reduced guest spending, and rising costs. The mixed results highlight a key issue: Disney’s domestic parks are resilient, but international markets may struggle amid broader economic uncertainties.

Looking ahead, Disney expects the experiences segment to grow profits by just 6% to 8% in fiscal 2025. Additionally, the company warned of a $130 million impact in Q1 2025 from Hurricanes Helene and Milton, coupled with $90 million in pre-launch costs for Disney Cruise Line. These headwinds could weigh on the segment’s performance and limit the upside in the near term.

Disney’s management remains confident in the company’s long-term prospects, projecting double-digit adjusted EPS growth for fiscal 2026 and 2027. However, I’m skeptical about this bullish outlook, given the persistent headwinds in the traditional TV network business, the uncertain future of subscriber growth in streaming, and the mixed results from the experiences segment.

DIS Daily Chart-

From my perspective, Disney’s stock has been a huge disappointment for investors, particularly those who bought in at much higher prices. Even with the recent surge off its lows, many retail investors are still bagholding this stock, hoping to break even or sell at a slight profit. This dynamic creates a significant overhead resistance level, as these investors may look to offload their shares once the price reaches their average buy-in level. As a result, I expect the stock to face selling pressure as it continues to climb, which could cap any significant rally in the near term.

Given the numerous challenges Disney faces, I’m staying away from this stock for now. While the Q4 results show some positive trends, the core issues—declining TV network revenues, uncertain streaming profitability, and headwinds in the experiences segment—remain unresolved. Additionally, with many investors still stuck at higher price levels, the stock is likely to face significant resistance on its way up. In my view, there are better investment opportunities in the market right now that offer more upside potential with fewer execution risks.

What Do You Think?

I’d love to hear your thoughts on Disney. Are you optimistic about the company’s turnaround, or do you share my concerns about the ongoing headwinds and the resistance levels ahead?

Feel free to share your perspective—do you believe Disney’s growth story is compelling enough to warrant a long-term investment, or is it still a stock to avoid?

@MillionaireTiger @Tiger_comments @Daily_Discussion @CaptainTiger @TigerSG

Disclaimer: This is a general analysis and not financial advice. Always conduct your own research before making any investment decisions.