DIS: Volatility Inevitable in Integration; Awaiting New Growth Drivers

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$Disney(DIS.US) reported FY26 Q1 (CY25 Q4) pre-market on Feb 2 ET. While the print and guide contained no major misses, the decision to stop disclosing streaming subs leaves greater uncertainty on the revenue trajectory, which will likely cap the multiple near term. Management also sounded cautious on another valuation pillar—the Parks segment—which could add to investor concerns.

Here are the details. See below.

1. Headline in line, profit slightly beat: Q1 revenue was $26.0bn (+5% YoY) with OP of $4.6bn. The market had already priced in weaker profitability across content sales, streaming and Sports, so the YoY profit decline was not a negative surprise.

2. Guidance steady, no fireworks: Q2 outlook roughly matches Street expectations. The company flagged Parks pressure, with fewer international visitors weighing on US park traffic. FY26 guidance appears largely unchanged.

3. Hits sold well, but timing mismatch on spend: Entertainment revenue rose 7%, helped by the box-office performance of 'Zootopia'. However, linear TV drag and upfront marketing for 'Avatar 3' drove margin compression this quarter. The prior standalone streaming unit was folded into SVOD, which grew 11% YoY. Given price hikes in Oct (US +10%, Intl +20%), the contribution from user growth was likely limited.

4. Sports aided by the NBA: Sports revenue declined YoY, affected by a ~half-month YouTube blackout and the Star divestiture in the base. With NBA ratings higher, revenue only slightly missed. Still, elevated content costs continue to weigh on monetization efficiency.

5. Parks held up under pressure: Despite tough comps and competitive headwinds, the new 'Disney Treasure' cruise itineraries supported demand, lifting attendance by 1% and per-capita spend by 4%. Segment revenue grew 6.3% overall.

6. Cash flow and buybacks: FCF was impacted by tax catch-up payments for FY25 and part of FY24, alongside higher QoQ capex. Of the $7bn FY26 buyback authorization, $2bn has been executed.

7. Key financial metrics at a glance

Dolphin Research View

Q1 delivered few surprises and no big misses, yet the stock fell 6% post-print. We think the core issue is reduced visibility into DIS’s long-term growth.

After discontinuing Disney+ sub disclosures, investors are questioning whether there is a clear roadmap and logic for streaming-led expansion, a key leg of the valuation. Management’s targets focus on OP, but the market does not want DIS to defend margins at the expense of growth too early. For the streaming OPM, whether improvements come from price hikes/cost cuts or from user-led top-line growth will heavily influence DIS’s upside.

Succession is also a FY26 focal point. The market currently views Josh D'Amaro (head of Parks) as a leading candidate, as the Parks division has stimulated cruise demand over the past year, helping backfill park attendance and withstand competitive pressure from Epic’s opening. In short, during the old-to-new media transition, DIS will endure some pain, but multiple expansion still hinges on new media growth rather than defensive profit preservation.

Market cap has slipped from ~$205bn back to ~+$190bn, roughly the prior quarter’s level. With the annual guide unchanged, FY26 EPS still implies ~16x, near the low end of DIS’s 5-year range. We continue to expect Iger, before stepping down, to streamline the portfolio with his successor and steer DIS back onto a growth track.

I. Understanding Disney

As a near-century-old entertainment empire, Disney’s org has been reshaped multiple times, which we detailed in ‘Disney: How a 100-year-old Princess Stays Young’. Over the past year, DIS overhauled leadership, revamped the org, and reset strategic priorities. Under the new structure, three core segments—Entertainment, Sports and Experiences—anchor the company.

What changed vs. the old structure?

The new structure elevates ESPN’s strategic role by carving out ESPN linear and ESPN+ into a dedicated Sports division. (1) Entertainment now covers: legacy linear networks, DTC (ex-ESPN+), and content sales, while pruning overlapping lines and lower-yield legacy channels during integration.

(2) Sports includes: ESPN linear, ESPN+, and Star. (3) Experiences includes: Parks & Experiences, resorts/cruises, and consumer products. It broadly mirrors the prior scope, though reported figures differ slightly after internal reclassifications.

2) Investment framework

(1) The redesign reflects a key shift—content and distribution are no longer split, but integrated. Segments are now organized primarily by content verticals. This helps solve the prior dilemma of where to premiere the same title. Day-and-date or streaming-first experiments diluted box office for some tentpoles, hurt talent participation, and strained relationships with star partners.

(2) Experiences is a mature cash generator. With top-tier IP, Disney’s parks maintain leadership and are more tied to macro consumption trends. In normal times, treat it as a stable cash-flow engine.

(3) Entertainment covers film/TV production and distribution across studio labels, legacy linear and streaming, so revenue is driven by Disney’s slate and overall box-office demand. Within it, streaming remains the mid-to-long-term strategic focus. However, pandemic-era competition intensified, and without a deep library of in-house series, heavy spend led to steep losses.

As the seesaw’s other end, legacy media inevitably weakened while streaming surged. For DIS, streaming is no longer pure incremental growth; a sizable portion offsets the structural decline of traditional channels. (4) The ‘new favorite’—Sports—may be the next growth vector. ESPN has long been inside DIS, but sports content is increasingly strategic for streamers; even Netflix has flagged bigger ambitions here.

Most recently, DIS will partner with Warner Bros. and integrate its own Fox assets to launch an upgraded ESPN in 2025—another step-up in its sports bet.

II. Detailed operating and financial charts

Dolphin Research ‘Disney’ related articles

Earnings season (latest quarter)

Aug 7, 2025 earnings call.《DIS (Trans): Consolidating streaming assets can unlock total value》

Aug 7, 2025 earnings review.《Stay patient—the springtime for DIS is near》

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