Disney (DIS)

Global entertainment and media company Disney (NYSE:DIS) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 2.1% year on year to $23.65 billion. Its non-GAAP profit of $1.61 per share was 11.5% above analysts’ consensus estimates.

Company Overview

Founded by brothers Walt and Roy, Disney (NYSE:DIS) is a multinational entertainment conglomerate, renowned for its theme parks, movies, television networks, and merchandise.

The advent of the internet changed how shows, films, music, and overall information flow. As a result, many media companies now face secular headwinds as attention shifts online. Some have made concerted efforts to adapt by introducing digital subscriptions, podcasts, and streaming platforms. Time will tell if their strategies succeed and which companies will emerge as the long-term winners.

Competitors in the entertainment and media industry include Comcast (NASDAQ:CMCSA), Warner Bros. Discovery (NASDAQ:WBD), and Paramount Global (NASDAQ:PARA).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Disney’s sales grew at a sluggish 6.3% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Disney’s recent performance shows its demand has slowed as its annualized revenue growth of 3.8% over the last two years was below its five-year trend.

We can dig further into the company’s revenue dynamics by analyzing its three most important segments: Entertainment, Sports, and Experiences, which are 45.3%, 18.2%, and 38.4% of revenue. Over the last two years, Disney’s revenues in all three segments increased. Its Entertainment revenue (movies, Disney+) averaged year-on-year growth of 3.5% while its Sports (ESPN, SEC Network) and Experiences (theme parks) revenues averaged 1.5% and 6.2%.

This quarter, Disney grew its revenue by 2.1% year on year, and its $23.65 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5% over the next 12 months, similar to its two-year rate. Although this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

Disney’s operating margin has risen over the last 12 months and averaged 15.1% over the last two years. Its solid profitability for a consumer discretionary business shows it’s an efficient company that manages its expenses effectively.

In Q2, Disney generated an operating margin profit margin of 19.3%, up 2.5 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Disney’s EPS grew at a decent 12.7% compounded annual growth rate over the last five years, higher than its 6.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q2, Disney reported adjusted EPS at $1.61, up from $1.39 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Disney’s full-year EPS of $5.96 to stay about the same.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Disney has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.6% over the last two years, slightly better than the broader consumer discretionary sector.

Disney’s free cash flow clocked in at $1.89 billion in Q2, equivalent to a 8% margin. This result was good as its margin was 2.6 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts predict Disney’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 12.2% for the last 12 months will decrease to 8.5%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Disney historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Disney’s ROIC increased by 4.4 percentage points annually over the last few years. This is a good sign, and we hope the company can continue improving.

Disney reported $5.37 billion of cash and $42.26 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $20.31 billion of EBITDA over the last 12 months, we view Disney’s 1.8× net-debt-to-EBITDA ratio as safe. We also see its $1.62 billion of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Disney beat analysts’ EBITDA expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its Experiences revenue missed and its revenue was in line with Wall Street’s estimates. Overall, this print was mixed. Investors were likely hoping for more, and shares traded down 1.2% to $116.98 immediately after reporting.

Updated: November 11, 2025 at 9:07 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Disney.

Disney falls short of our quality standards. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its sturdy operating margins show it has disciplined cost controls, the downside is its Forecasted free cash flow margin suggests the company will ramp up its investments next year. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Disney’s P/E ratio based on the next 12 months is 18.7x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $134.22 on the company (compared to the current share price of $114.82).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.