Disney (DIS)

Global entertainment and media company Disney (NYSE:DIS) announced better-than-expected revenue in Q4 CY2025, with sales up 5.2% year on year to $25.98 billion. Its non-GAAP profit of $1.63 per share was 3.4% 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).

A company’s long-term performance is an indicator of its overall 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 weak 9.5% compounded annual growth rate. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Disney’s recent performance shows its demand has slowed as its annualized revenue growth of 3.7% 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 44.7%, 18.9%, and 38.5% 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 4.2% while its Sports (ESPN, SEC Network) and Experiences (theme parks) revenues averaged 1.3% and 5.4%.

This quarter, Disney reported year-on-year revenue growth of 5.2%, and its $25.98 billion of revenue exceeded Wall Street’s estimates by 0.8%.

Looking ahead, sell-side analysts expect revenue to grow 7.1% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.

Disney’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 15.1% over the last two years. This profitability was inadequate for a consumer discretionary business and caused by its suboptimal cost structure.

In Q4, Disney generated an operating margin profit margin of 17.7%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

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 remarkable 48.6% compounded annual growth rate over the last five years, higher than its 9.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q4, Disney reported adjusted EPS of $1.63, down from $1.76 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 3.4%. Over the next 12 months, Wall Street expects Disney’s full-year EPS of $5.80 to grow 17.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Disney has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.2%, lousy for a consumer discretionary business.

Disney burned through $2.28 billion of cash in Q4, equivalent to a negative 8.8% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Disney’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 7.4% for the last 12 months will increase to 9.9%, giving it more flexibility for investments, share buybacks, and dividends.

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 7.6%, 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. Fortunately, Disney’s has increased over the last few years. This is a good sign, and we hope the company can continue improving.

Disney reported $5.68 billion of cash and $46.64 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 $20.25 billion of EBITDA over the last 12 months, we view Disney’s 2.0× net-debt-to-EBITDA ratio as safe. We also see its $1.41 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 glad its EPS outperformed Wall Street’s estimates. On the other hand, its Sports revenue missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 3.8% to $117.08 immediately following the results.

Updated: February 2, 2026 at 6:57 AM 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 falls short of our quality standards. To kick things 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 remarkable EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its low free cash flow margins give it little breathing room.

Disney’s P/E ratio based on the next 12 months is 16.5x. This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $132.23 on the company (compared to the current share price of $117.08).