Disney (DIS)

Global entertainment and media company Disney (NYSE:DIS) fell short of the markets revenue expectations in Q3 CY2025, with sales flat year on year at $22.46 billion. Its non-GAAP profit of $1.11 per share was 8.4% 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).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Disney grew its sales at a sluggish 7.6% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector and is a poor baseline 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 3.1% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Entertainment, Sports, and Experiences, which are 45.4%, 17.7%, and 39% 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 2.5% while its Sports (ESPN, SEC Network) and Experiences (theme parks) revenues averaged 1.6% and 5.5%.

This quarter, Disney missed Wall Street’s estimates and reported a rather uninspiring 0.5% year-on-year revenue decline, generating $22.46 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

Disney’s operating margin has been trending up over the last 12 months and averaged 15% 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 Q3, Disney generated an operating margin profit margin of 15.5%, up 2.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Disney’s EPS grew at a spectacular 24.2% compounded annual growth rate over the last five years, higher than its 7.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q3, Disney reported adjusted EPS of $1.11, down from $1.14 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 8.4%. Over the next 12 months, Wall Street expects Disney’s full-year EPS of $5.93 to grow 9.4%.

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% over the last two years, slightly better than the broader consumer discretionary sector.

Disney’s free cash flow clocked in at $2.56 billion in Q3, equivalent to a 11.4% margin. The company’s cash profitability regressed as it was 6.5 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t put too much weight on this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

Over the next year, analysts predict Disney’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 10.7% for the last 12 months will decrease to 9.6%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared 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 7.1%, 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. Over the last few years, Disney’s ROIC has increased. This is a good sign, and we hope the company can continue improving.

Disney reported $5.70 billion of cash and $42.03 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 $21.6 billion of EBITDA over the last 12 months, we view Disney’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $1.50 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.

Disney+, the company's flagship streaming service, added 3.8 million subscribers, above expectations. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its Entertainment revenue missed and its revenue fell slightly short of Wall Street’s estimates. The traditional, linear TV segment is struggling. Overall, we think this quarter could have been better. Despite the solid streaming results, the market seemed to be hoping for more, and the stock traded down 3.1% to $113.13 immediately after reporting.

Updated: December 4, 2025 at 9:56 PM EST

Before investing in or passing on Disney, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Disney doesn’t pass our quality test. To kick things off, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. On top of that, Disney’s Forecasted free cash flow margin suggests the company will ramp up its investments next year, and 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 16x. This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $132.50 on the company (compared to the current share price of $105.49).

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.