Disney: The happiest stock in your portfolio?

The Walt Disney Company is one of the world’s most recognizable entertainment companies, with businesses spanning movies, television, streaming, sports, theme parks, cruises, and consumer products. Built on a century of storytelling and some of the most valuable intellectual property ever created, Disney has a unique ability to turn its characters and franchises into revenue across both digital platforms and real-world experiences. With streaming becoming profitable and parks delivering record earnings, Disney combines powerful brands with multiple long-term growth drivers. The question remains: Does this entertainment giant deserve a place in your portfolio today?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Disney at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Disney, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

The Walt Disney Company is a diversified global entertainment business built around creating stories and characters, distributing that content through multiple channels, and then extending the most successful franchises into high-value experiences and consumer products. It operates through three segments: Entertainment, Sports, and Experiences. The Entertainment segment is Disney’s content engine. It produces films and episodic series across a wide set of studio banners and then monetizes that output through a mix of traditional television, streaming, and content sales and licensing. Linear Networks includes domestic and international TV channels and the ABC network, where revenues are largely driven by affiliate fees paid by distributors and advertising. Direct-to-consumer includes Disney+ and Hulu, where the business is driven by subscription fees and advertising, and where bundling helps keep customers engaged across services. Content sales and licensing captures the value of each title across theaters, licensing to TV and video-on-demand services, home entertainment, music, stage plays, and specialized production services. A key asset here is Disney’s large library built over roughly a century, which provides a deep catalog that can be monetized repeatedly and can also support new distribution models. The Sports segment is primarily ESPN and related sports distribution. Disney monetizes sports through a combination of affiliate and subscription fees and advertising, supported by a portfolio of major sports rights that drive live viewing. ESPN also spans both traditional pay-TV channels and direct-to-consumer offerings, which allows Disney to reach audiences across different viewing habits while preserving the premium economics that live sports can command. The Experiences segment transforms Disney’s intellectual property into physical destinations and products. It includes theme parks and resorts, cruises, vacation club properties, guided travel offerings, and consumer products licensing and retail. This segment earns revenue from admissions, hotels and vacations, food and merchandise sales, and royalties from licensing its intellectual property to third parties. A notable feature is that Disney can also expand through capital-light arrangements where it licenses its brand and provides services while a partner funds and operates the project. Disney’s competitive moat is rooted in the combination of world-class intellectual property and a unique ability to monetize that intellectual property across both digital and physical platforms. The company owns a set of franchises that are globally recognized and emotionally resonant, and it controls a library large enough to keep audiences engaged across generations. That matters because attention in entertainment tends to concentrate around a limited number of brands, and Disney’s portfolio consistently ranks among the most enduring. What makes Disney especially hard to replicate is the way its segments reinforce one another. Successful content does not end when a film or series is released; it becomes a long-lived asset that can drive streaming subscriptions, create demand for merchandise, and serve as the foundation for theme park lands, cruise experiences, and live entertainment. Those experiences then deepen customer attachment to the characters and stories, keep the brands culturally present, and create more reasons for families to return. This reinforcement loop is difficult for pure streaming companies to copy because they lack physical destinations, and it is difficult for theme-park operators to copy because they do not own a comparable pipeline of globally known franchises and a century-scale content library. Disney also benefits from distribution optionality. It can release a title theatrically, use its own TV and streaming platforms, and license selectively to others depending on what maximizes lifetime value. This flexibility helps the company adjust to changes in consumer behavior and industry structure while continuing to extract value from the same underlying intellectual property. Finally, the Experiences business adds another layer of defensibility through scale, scarcity, and execution. Theme parks and cruises require large capital, operational excellence, and a level of trust that is especially important for families. The physical footprint and the complexity of delivering consistently high-quality experiences create barriers that new entrants struggle to overcome. Combined with brand strength, this supports strong pricing power and repeat visitation, which can make Experiences a stabilizing cash flow engine even when parts of the media business are under pressure.

Management

Bob Iger serves as the CEO of The Walt Disney Company, having returned to the role in November 2022 for a four year term. He previously led the company as CEO from 2005 to 2020 and first joined Disney in 1996, holding a series of senior leadership roles before being appointed to the top position. Over the course of his initial tenure, Bob Iger became widely regarded as one of the most successful CEOs in the company’s history. During his first term as CEO, Bob Iger fundamentally reshaped Disney through a disciplined strategy centered on creative excellence, strategic acquisitions, and global expansion. He was instrumental in acquiring Pixar Animation Studios in 2006, Marvel Entertainment in 2009, Lucasfilm in 2012, and most recently 21st Century Fox in 2019. These acquisitions significantly expanded Disney’s intellectual property portfolio and laid the foundation for long term growth across film, television, streaming, consumer products, and theme parks. Under his leadership, Disney also launched Disney+, marking a pivotal shift toward direct to consumer distribution, and oversaw the opening of Shanghai Disney Resort, the company’s first theme park and resort in mainland China. Bob Iger’s leadership delivered strong results for shareholders. During his initial tenure as CEO, Disney stock generated an annualized return of approximately 12,3 percent, reflecting both earnings growth and the market’s confidence in the company’s strategic direction. He is known for his clear and direct communication style, as well as his belief in focusing the organization on a limited number of core priorities at any given time. Throughout his first term, those priorities included producing high quality creative content, embracing technological innovation, expanding into new markets, and maintaining a strong corporate culture that empowered creative talent. Since returning as CEO, Bob Iger has focused on stabilizing the organization and addressing the strategic challenges that emerged during the streaming transition. His priorities for the current term include restoring creative autonomy within Disney’s studios, simplifying the company’s organizational structure, maintaining cost discipline through measures such as a hiring freeze, and improving the profitability and long term economics of the streaming business. His return has also been seen as an effort to reanchor Disney’s strategy around storytelling, brand stewardship, and disciplined capital allocation. Under Bob Iger’s leadership, Disney received numerous external recognitions over an extended period. The company was consistently named by Forbes as one of America’s and the world’s most respected companies between 2006 and 2019, by Fortune as one of the world’s most admired companies from 2009 to 2021, and by Barron’s as one of the world’s most respected companies from 2009 to 2017. Bob Iger himself was named CEO of the Year multiple times, reflecting both operational success and his standing within the broader business community. Given Bob Iger’s long tenure at Disney, his role in building one of the strongest intellectual property portfolios in the world, and his proven ability to navigate large scale strategic shifts, his credentials and track record stand out. I believe Bob Iger is uniquely well positioned to guide Disney through its current transition and to reinforce the company’s long term competitive strengths during his current term as CEO.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Disney does not meet that standard. While ROIC was comfortably above 15% in the mid to late 2010s, it declined sharply from 2019 and reached very low levels in 2020 and 2021. This was not the result of a weakening franchise, but rather a period of unusually heavy investment combined with external shocks. The acquisition of 21st Century Fox materially increased the capital base while initially generating lower returns. At the same time, Disney deliberately invested aggressively in Disney+, accepting operating losses to build scale in streaming. The pandemic then severely disrupted Parks and Experiences, historically one of Disney’s highest return businesses, further depressing earnings. The combination of higher invested capital and temporarily weaker profits caused ROIC to collapse. Since fiscal year 2021, the direction has clearly improved. ROIC has increased every year as Parks and Experiences rebounded and began delivering margins above pre pandemic levels, supported by pricing power and higher spending per guest. At the same time, streaming losses have narrowed as Disney shifted its focus away from pure subscriber growth and toward profitability and operating leverage. Management has also indicated that the period of elevated investment is largely behind them, with capital spending levels stabilizing while earnings and free cash flow continue to grow. This dynamic, where profits grow faster than invested capital, is exactly what drives a sustained recovery in ROIC. Looking ahead, further improvement in ROIC appears achievable, but a quick return to consistently above 10% should not be assumed. Disney’s capital base is structurally larger than it was a decade ago due to the Fox acquisition and the expanded scale of parks and cruise operations, which makes very high returns harder to reach. However, if streaming achieves sustainable profitability and continues to expand margins, and if Parks and Experiences maintain their current performance, Disney could gradually move back toward high single digit to low double digit ROIC over time.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Equity at The Walt Disney Company has increased in most years mainly because the business has earned money and reinvested part of those profits back into the company. When Disney generates profits and keeps them on the balance sheet instead of paying everything out, the company’s equity grows over time. This has generally been the case across most of the past decade, supported by strong contributions from Parks and Experiences and, in earlier years, from the traditional media businesses. The very large jump in equity in fiscal year 2019 is explained by the acquisition of 21st Century Fox. Disney paid for a large part of this deal by issuing new Disney shares to Fox shareholders. When those new shares were issued and Fox’s businesses were added to Disney, the size of Disney’s balance sheet increased sharply. This caused equity to jump in a single year, not because profits suddenly surged, but because Disney became a much larger company overnight through the acquisition. The decline in equity in 2020 and the weaker growth in the following years were mainly caused by the pandemic and by challenges in the media business. Theme parks were closed or operated at limited capacity, and streaming was still in a heavy investment phase with losses. In addition, Disney reduced the stated value of some businesses it owned after reassessing their long term prospects. Together, these factors temporarily held back equity growth. Looking ahead, equity is likely to grow again, but more gradually than in the past. Management expects earnings and cash generation to improve, and the period of very heavy investment appears to be over. If Disney continues to earn solid profits and avoids large acquisitions, equity should increase over time.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Free cash flow at Disney has been volatile over the past decade, but the pattern is logical once the underlying business decisions are taken into account. Disney generated strong and fairly stable free cash flow up until 2018, supported by highly profitable parks, strong studio performance, and a media business that required relatively modest reinvestment. Free cash flow margins in that period were consistently in the mid teens, reflecting a mature and very cash generative business model. The sharp decline from 2019 through 2021 was driven by a combination of strategic choices and external shocks. Disney entered a heavy investment phase to build Disney+, significantly increasing spending on content, technology, and marketing, while accepting losses in streaming to gain scale. At the same time, the acquisition of 21st Century Fox added complexity and integration costs. The pandemic then severely disrupted Parks and Experiences, which is normally one of Disney’s largest sources of cash. With profits under pressure and investment levels elevated, free cash flow fell to unusually low levels and margins compressed. Since then, the recovery has been meaningful, culminating in a record level of free cash flow in fiscal year 2025. This improvement is not driven by one off items, but by a combination of stronger operating income, normalization of investment spending, and improving performance across multiple segments. Parks and Experiences are generating higher cash flows than before the pandemic, supported by pricing power and higher guest spending. Streaming losses have narrowed significantly, and management has been clear that the period of peak investment is behind them. As they noted on the earnings call, earnings growth is now translating much more directly into cash generation. Looking ahead, continued growth in free cash flow appears likely, although the pace may moderate from the sharp rebound seen recently. Management expects double digit adjusted EPS growth in fiscal 2026 and beyond, and they have stated that investment levels have largely leveled off. That combination is supportive of further free cash flow growth. Streaming is particularly important here. Management expects double digit margins over time, driven by revenue growth and operating leverage rather than cost cutting. If that plays out, streaming should shift from being a drag on free cash flow to becoming a meaningful contributor. As for margins, returning to the very high free cash flow margins seen before 2019 is possible, but not guaranteed. The business is now larger and more complex, with streaming playing a much bigger role and Parks requiring ongoing capital spending to support growth. However, management has indicated that margin expansion beyond 2026 is expected to come in meaningful steps rather than small incremental improvements. If Parks maintain their current performance and streaming margins improve as guided, free cash flow margins could gradually move back toward low to mid teens over time. Disney uses its free cash flow in a fairly clear and disciplined way. The first priority is reinvesting in the business to support long term growth, particularly in content, parks, and technology. Beyond that, returning capital to shareholders has become increasingly important. For fiscal 2026, management is targeting $7 billion in share repurchases, double the level of fiscal 2025, alongside a 50% increase in the dividend. Disney is also comfortable with its current debt level and does not aim to build excess cash on the balance sheet, which supports continued buybacks as long as cash generation remains strong. The free cash flow yield is at its highest level since fiscal year 2018, indicating that the shares are trading at some of their most attractive levels in many years. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to assess whether a business has manageable debt that can reasonably be repaid within a three year period. This is calculated by dividing total long term debt by earnings. For Disney, this calculation indicates that the company’s debt could be repaid in 2,87 years, which is below the three year threshold. Based on this measure, debt is not a concern for Disney. It is also worth noting that Disney’s elevated debt level is primarily the result of acquisitions, most notably the $71,3 billion acquisition of 21st Century Fox, which remains the largest acquisition in the company’s history. Since completing that transaction, Disney has consistently reduced its debt year after year. Management has also stated that it is comfortable with the company’s current debt level, reinforcing the view that the balance sheet is in a healthy position.

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Risks

Macroeconomic factors are a risk for Disney because a large part of its business depends directly on consumer spending and overall economic confidence. Disney operates across entertainment, sports, and experiences, all of which are sensitive to changes in economic conditions in the U.S. and internationally. When economic growth slows or inflation rises, consumers tend to cut back on discretionary spending, and Disney’s offerings are largely discretionary by nature. The Experiences segment is particularly exposed. Theme park visits, cruises, resort stays, and premium add-ons are among the first expenses households reconsider during periods of economic stress. While higher-income consumers have remained relatively resilient, any broader weakness that spreads into the upper-middle class could quickly impact park attendance, hotel occupancy, cruise bookings, and in-park spending. At the same time, macroeconomic pressure can increase operating costs. Inflation raises the cost of goods, services, and especially labor, which is a significant expense for parks, resorts, and cruise operations. Even if inflation moderates, management has acknowledged that certain costs, such as labor, are likely to remain structurally higher, which can limit margin expansion. Macroeconomic conditions also affect Disney’s media and advertising businesses. During economic slowdowns, companies often reduce advertising budgets, which can negatively impact both Disney’s linear networks and its direct-to-consumer platforms. Lower advertising demand can pressure pricing and volumes at the same time that content and distribution costs remain largely fixed. In addition, weaker consumer confidence or purchasing power may lead to slower subscriber growth, higher churn, or resistance to price increases across Disney’s streaming services, reducing the expected profitability of those platforms. Interest rates add another layer of risk as higher interest rates can make financing large investments less attractive and reduce flexibility in capital allocation. More broadly, prolonged or deeper economic weakness could interfere with Disney’s strategic plans. Investments in new attractions, park expansions, cruise ships, and streaming enhancements are based on assumptions about demand and pricing power. If economic conditions fail to improve as anticipated, Disney may face delays, lower returns on investment, or the need to adjust pricing and product offerings. In addition, weaker economic conditions can strain business partners, advertisers, and distributors.

Competition is a risk for Disney because it affects nearly every part of the business and influences both revenue potential and cost structure. Disney operates in highly competitive markets where consumer attention, time, and spending are limited, and where competitors are constantly investing to win share. In content creation and media distribution, competition has intensified materially over the past decade. Disney competes with traditional studios and television networks, as well as global streaming platforms and digital-first players, to attract top creative talent, secure compelling stories and franchises, and capture audience attention. The rise of streaming has lowered barriers to distribution and increased the number of well-funded competitors producing premium content. This has driven up the cost of talent, production, and sports rights, while making it harder for any single platform to consistently dominate viewership. Even with Disney’s strong IP portfolio, maintaining relevance requires continuous investment and creative success, which increases execution risk. Competition is also a growing challenge in advertising. Disney’s linear networks and streaming platforms compete for advertising budgets not only with other media companies, but increasingly with digital platforms such as social media, search, online marketplaces, and gaming. These platforms offer advertisers highly targeted, data-driven advertising options, which can be more measurable and flexible than traditional television advertising. As a result, advertising dollars have become more fragmented, putting pressure on ad pricing and increasing demand uncertainty across both linear and digital channels. In streaming specifically, Disney competes for subscribers with a wide range of entertainment options, including other streaming services, social media, video games, and user-generated content platforms. Consumers have limited time and are increasingly selective about how many services they are willing to pay for. This makes subscriber growth, pricing power, and churn management more challenging, especially as competitors continue to bundle services, invest aggressively in content, or accept lower margins to gain scale. Disney’s Experiences segment is also exposed to competition, even though it benefits from strong brands and high barriers to entry. Theme parks, resorts, and cruises compete not only with other theme park operators, but with all forms of leisure, travel, lodging, and entertainment. Competitors regularly introduce new attractions, experiences, and promotional offers that can influence travel decisions. Because Disney’s parks and cruises are capital intensive and have high fixed costs, the company must consistently deliver exceptional guest experiences to justify premium pricing and sustain demand.

Maintenance of intellectual property rights is a risk for Disney because intellectual property sits at the core of almost everything the company does. Disney’s films, series, characters, franchises, theme parks, merchandise, and even cruise experiences are all built on the ability to own, control, and monetize IP over long periods of time. Any weakening of those rights can directly reduce revenue, increase costs, or limit Disney’s strategic flexibility. One key risk comes from the finite duration of copyright protection. Copyright laws differ by country, but in the U.S. and many jurisdictions that follow similar standards, copyrights for older works eventually expire. When this happens, Disney loses exclusive control over those specific works and early versions of characters. A clear example is Steamboat Willie from 1928 and the earliest depictions of Mickey Mouse, whose copyrights have now expired. As more legacy works reach the end of their legal protection, Disney can face increased competition from third parties using those characters or stories without paying licensing fees. While Disney can still protect later versions and trademarks, the loss of exclusivity can dilute brand value and reduce monetization opportunities over time. Unauthorized use of Disney’s IP is another significant risk. Advances in technology have made it easier and faster to copy, distribute, and modify content without permission. High-speed internet, global digital distribution, and mobile platforms have increased piracy of films, series, and sports content. This can directly reduce revenue from theatrical releases, streaming subscriptions, and licensing, while also forcing Disney to spend heavily on enforcement and legal protection. These challenges are especially pronounced in regions where IP laws are weaker or enforcement is inconsistent, but the impact can be global due to the borderless nature of digital distribution. The emergence of generative AI adds a new and less predictable layer of risk. AI tools can now create images, video, audio, and text that closely resemble Disney’s characters, worlds, and storytelling styles, often without authorization. This raises questions about ownership, originality, and enforcement that existing legal frameworks were not designed to address. The legal treatment of AI-generated content remains uncertain in many jurisdictions, and changes in regulation or court rulings could limit Disney’s ability to prevent unauthorized use or to fully monetize its IP in new formats. While Disney is actively engaging with AI companies to protect its IP and explore collaboration opportunities, there is no guarantee that future rules will fully safeguard its interests.

Reasons to invest

The movie business is a reason to invest in Disney because it sits at the center of a uniquely powerful and integrated value creation model that very few companies in the world can replicate. Disney is not just a film studio in the traditional sense. It is an owner of globally recognized intellectual property with the ability to monetize successful movies across an entire ecosystem of platforms, experiences, and consumer touchpoints, dramatically increasing the lifetime value of each film. A successful Disney movie today generates far more value than box office receipts alone. When a film performs well, it feeds directly into Disney’s streaming platforms, where it drives viewership, subscriber engagement, and retention. New releases often reignite interest in earlier films within the same franchise, boosting consumption across Disney+ and reinforcing the long-term value of Disney’s deep content library. This creates a reinforcing loop where theatrical success strengthens streaming economics rather than cannibalizing them. Beyond streaming, Disney’s films act as catalysts across Parks and Experiences, consumer products, and games. Major releases often translate into new attractions, themed lands, cruise experiences, merchandise, and live entertainment. A single blockbuster can generate demand for toys, apparel, and collectibles, while also increasing park attendance and guest spending through themed rides and events. This multiplier effect means that Disney can earn revenue from the same story and characters across multiple business segments, often for decades. Recent performance highlights the strength of this model. Disney’s studios have delivered multiple global franchise hits exceeding $1 billion in box office revenue over the past two years, while no other Hollywood studio has matched that level of success over the same period. The live-action Lilo & Stitch has been the highest-grossing Hollywood film globally in calendar 2025 and quickly became one of the most successful live-action premieres on Disney+. At the same time, consumer product sales related to the Stitch franchise surpassed $4 billion in fiscal 2025, underscoring how theatrical success extends well beyond cinemas. Importantly, Disney acknowledges that not every film will succeed, but its scale and portfolio approach help mitigate that risk. With multiple high-profile releases each year and a deep bench of iconic studios such as Disney, Pixar, Marvel, and Lucasfilm, the company does not depend on a single hit to deliver strong overall results. When films do succeed, however, the financial upside is disproportionately large because Disney captures value across so many channels.

Experiences is a reason to invest in Disney because it represents a rare combination of brand power, pricing strength, high returns, and long-term growth visibility that is extremely difficult to replicate. For Disney, Experiences is not just a supporting business but a core earnings engine that turns intellectual property into durable, real-world cash flows. At the heart of the Experiences segment are Disney’s theme parks and resorts, which are widely regarded as best-in-class globally. These assets are not easily comparable to other leisure offerings. Disney’s parks are built around immersive storytelling, iconic characters, and consistently high service standards, creating destinations that many families view as once-in-a-lifetime or repeat traditions rather than interchangeable entertainment options. This positioning gives Disney pricing power and resilience that most leisure and tourism operators do not have. The parks are effectively “assets of one,” where competition exists but substitution is limited because no other operator combines scale, brand depth, and execution at the same level. Financially, this strength shows clearly. Experiences delivered record operating income in fiscal year 2025, surpassing $10 billion for the first time, with solid growth both domestically and internationally. The planned Disney-branded theme park in Abu Dhabi further highlights the strategic value of Experiences. The project uses a capital-light structure where Disney licenses its IP and provides expertise while the partner funds construction. This approach limits Disney’s financial risk while opening access to a new geographic region that connects the Middle East, India, Africa, and Eastern Europe. Over time, this expands Disney’s addressable audience by hundreds of millions of potential visitors and strengthens the global reach of the brand. Disney Cruise Line is an increasingly important growth driver within Experiences. The cruise business combines Disney’s storytelling and service standards with a controlled, immersive environment that consistently delivers some of the highest guest satisfaction scores across the entire company. Cruises are priced at a premium, utilization rates remain high even as capacity expands, and repeat customer behavior is strong. Disney is in the process of meaningfully expanding its cruise fleet, with new ships coming online in the near term and additional ships planned through the end of the decade. Despite this rapid capacity expansion, demand has remained robust, and new ships are being filled quickly, supporting the view that cruises can be a long-term earnings compounder. A key advantage of the cruise business is its flexibility and global potential. Cruise ships can be deployed into new markets more easily than fixed assets like theme parks, allowing Disney to test and expand internationally with lower geographic risk. This is particularly important as Disney looks to grow its Experiences footprint beyond its traditional strongholds in North America and Europe.

Streaming is a reason to invest in Disney because it has transitioned from being a heavy drag on profitability into a scalable, profitable growth engine that strengthens the entire company ecosystem. For Disney, streaming is no longer just about distribution. It is becoming the central digital interface through which Disney engages consumers, monetizes its intellectual property, and connects its businesses globally. The most important shift is financial. Just three years ago, Disney’s direct-to-consumer business was running at roughly a $4 billion operating loss. In fiscal year 2025, streaming generated $1,3 billion in operating income, up $1,2 billion year over year and well ahead of original guidance. This rapid turnaround demonstrates that Disney has moved past the scale-at-any-cost phase and into a phase where earnings growth, margin expansion, and cash generation are now the priority. Few streaming platforms have shown this kind of improvement in such a short time frame. Strategically, Disney is reshaping streaming into a more unified and powerful product. The move to make Hulu the global general entertainment brand and consolidate entertainment, sports, and eventually news into a more seamless app experience is designed to simplify discovery, increase engagement, and highlight the full value of Disney’s bundles. A simpler, more intuitive product increases usage, reduces churn, and makes marketing more efficient. Bundling is a key competitive advantage. Subscribers who take bundles, whether Disney+ and Hulu or the full Disney+, Hulu, and ESPN combination, have meaningfully lower churn and higher engagement than single-app subscribers. Around 80% of new ESPN direct-to-consumer subscribers are choosing bundles, which is a strong signal that Disney’s ecosystem approach works. Bundling not only improves retention but also increases lifetime value per customer, making growth more profitable rather than simply larger. ESPN’s move to full direct-to-consumer distribution is another major pillar of the streaming investment case. The new ESPN app goes far beyond replicating linear television. Features like Multiview, SportsCenter For You, personalized highlights, live stats, fantasy integration, betting tools, and commerce turn ESPN into a deeply interactive digital product. Early adoption, engagement, and authentication rates have been encouraging. This strengthens ESPN’s long-term relevance as viewing habits continue to shift away from traditional pay TV. From an advertising perspective, streaming adds incremental value. Disney’s ad-supported streaming offerings give advertisers better data, targeting, and measurement than traditional television. Sports, in particular, remains highly attractive to advertisers, and the combination of premium live content with first-party data strengthens Disney’s competitive position. Looking ahead, management expects streaming revenue to grow at an attractive rate, with an aspiration of double-digit top-line growth and double-digit margins starting in fiscal 2026. Importantly, they expect margin improvement to come in meaningful steps over the next several years, not in small incremental changes. This suggests that streaming profitability is still in an early phase, with room for substantial upside as scale, pricing, advertising, and operating leverage continue to improve.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 6,85, which is from the fiscal year 2025. I have selected a projected future EPS growth rate of 11%. Finbox expects EPS to grow by 11,4%. Additionally, I have selected a projected future P/E ratio of 22, which is twice the growth rate. This decision is based on Disney's historically higher price-to-earnings (P/E) ratio. Our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $105,77. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Disney at a price of $52,89 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 18.101, and capital expenditures were 8.024. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a general guideline, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 5.617 in our calculations. The tax provision was 1.796. We have 1.798 outstanding shares. Hence, the calculation will be as follows: (18.101 – 5.617 + 1.796) / 1.798 x 10 = $79,42 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Disney's free cash flow per share at $5,60 and a growth rate of 11%, if you want to recoup your investment in 8 years, the Payback Time price is $73,72.

Conclusion

I believe The Walt Disney Company is an intriguing company with strong management and a durable competitive position built on world-class intellectual property and a unique ability to monetize that IP across both digital and physical platforms. While Disney’s ROIC has been underwhelming over the past seven years due to heavy investments, ROIC has improved every year recently and is moving in the right direction, with a return above 10% appearing increasingly achievable as earnings grow faster than the capital base. Free cash flow reached a record high in fiscal year 2025, and margins are expected to improve further as investment intensity moderates and streaming profitability continues to scale. At the same time, Disney is not without risks. Macroeconomic factors remain a risk because a large part of the business depends on discretionary consumer spending and advertising demand, which can weaken during economic slowdowns or periods of inflation, while higher costs can pressure margins and delay returns on large investments. Competition is another meaningful risk, as Disney operates in crowded markets where attention, advertising budgets, and consumer spending are constantly contested, driving up content and talent costs, increasing churn risk in streaming, and requiring continuous investment to defend its premium positioning. Maintenance of intellectual property rights is also critical, since expiring copyrights, piracy, and emerging risks from generative AI can weaken exclusivity and reduce Disney’s ability to fully capture the long-term value of its franchises. Against these risks stand several compelling investment pillars. The movie business remains a key strength because successful films act as long-lived franchises that can be monetized far beyond the box office across streaming, parks, consumer products, and experiences, allowing Disney to generate durable returns while spreading risk across a deep portfolio. Experiences is another major reason to invest, as it turns IP into high-margin, hard-to-replicate real-world businesses with strong pricing power, supported by record earnings from parks, capital-light international expansion, and a rapidly growing premium cruise business. Streaming has also become a reason to invest, having transitioned from a large loss-making operation into a profitable and scalable growth engine that strengthens the entire ecosystem through bundling, advertising, and direct consumer relationships. Taken together, I believe Disney is a high-quality company with improving fundamentals, and buying shares around a Payback Time of $73 could represent an attractive long-term investment opportunity.

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