Disney: The Compelling Case for Buying Now Before They Scale Up

Key Points

• Disney stock is trading at a price-earnings (P/E) ratio of 29.42x, well under its average P/E of 46.58x.
• Disney’s Entertainment segment grew its operating profit by 95% year-over-year (YoY) in FQ1 2025.
• Disney is undergoing the largest theme park expansion projects in its history, raising its Experiences segment CapEx to $8 billion, up from $5 billion in fiscal 2024.

The Walt Disney Co. NYSE: DIS is the second-largest media and entertainment conglomerate in the world, widely recognized for its portfolio of recognizable brands, iconic intellectual property (IP), and theme parks. The consumer discretionary sector leader has managed to turn its direct-to-consumer (DTC) streaming networks business profitable. Value investors embracing the core strategy of buying low and selling high may take advantage of the low valuations. Disney is trading at a price-earnings (P/E) ratio of 29.42x and 16.46x forward earnings, compared to its average P/E of 46.58x.

The growing number of catalysts and opportunities ahead underscore the potential ramp and scale-up of its multi-engine growth platform, which makes for a compelling case for buying now before it occurs.

The Streaming Networks Are in the Black

Disney’s DTC streaming services business, including Disney+, ESPN+ and Hulu, incurred significant operating losses of nearly $1.5 billion in FQ4 2022, more than doubling its $630 million in losses in the year-ago period. This led to the immediate termination and replacement of its then-CEO, Bob Chapek, with returning CEO Bob Iger. Under his stewardship, Disney enacted a $5 billion cost-cutting plan streamlining its services and content.

Implementing $5 Billion in Cost Savings While Boosting Quality

Despite the fanfare behind its Marvel Cinematic Universe (MCU) Disney+ series and continuity-anchored storylines, episodes were extravagantly expensive, costing $20 million to $25 million each to produce. Additionally, its guaranteed box office blowout results also started to fade with disappointing results starting with the Phase Five release of "Ant-Man and Wasp: Quantumania."

Iger decided to reduce the output of shows and movies to focus on quality over quantity. Disney also administered multiple price hikes, boosting average revenue per user (ARPU) for all tiers, including its ad-supported tier.

Disney’s Animated MCU Can Be 90% Cheaper Than Live-Action Series

This momentum comes as Disney scales up its direct-to-consumer business with a slate of highly anticipated Marvel Cinematic Universe series. Upcoming titles include the critically acclaimed "Daredevil: Born Again," the Black Panther franchise expansions "Ironheart" and "Eyes of Wakanda," and sleeper hits such as "Marvel Zombies" and "Your Friendly Neighborhood Spider-Man." Rather than focusing on costly live-action productions, most of these new Disney+ series are animated, making them far more cost-effective.

With live-action, the costs can be staggeringly high for a season, ranging from $150 million to $200 million, as they have to use the same A-list actors from their films for continuity of storylines, pay for locations, expensive CGI/VFX, reshoots, and film crews.

The costs for a season with animation can range from $7.5 million to $20 million. While live action attracts more viewers, animation provides a better return on equity (ROE).

Disney’s Entertainment Segment Is Ramping Up

The DTC business is part of Disney’s Entertainment segment and was instrumental in its 95% year-over-year (YOY) growth in operating profits in FQ1 2025. In addition to scaling up its direct-to-consumer operations, Disney has a slate of proven billion-dollar blockbuster franchise releases lined up for 2025, including "Zootopia 2" and "Avatar: Fire and Ash," the third installment in the "Avatar" series. Other highly anticipated films include the live-action "Lilo & Stitch," "Thunderbolts," and "The Fantastic Four: First Steps."

 Don’t write off the merchandising revenues accompanying these films, even after Chinese tariffs. The trajectory for surpassing Disney Experiences’ profits is favorable after doubling from $874 million to $1.7 billion versus flat Experiences’ profit of $3.11 billion in FQ1 2025.

Disney Experiences Segment Is Steady and Ready to Rise

The stable nature of its Experiences segment can’t be understated. When Disney lost $1.5 billion in its DTC streaming business, the theme parks business made $1.5 billion in profits to offset it. While growth has been flat, it is preparing to ramp up thanks to capital expenditures (CapEx) spending of up to $8 billion in its theme parks and cruises.

Its Magic Kingdom theme parks will include its largest slate of expansion projects ever, including themes centered around "Cars," "Monsters, Inc." and Disney Villains, as well as intellectual properties in Animal Kingdom and California Adventure such as "Encanto," "Indiana Jones" and "The Lion King."

Disney Cruise Line is adding seven new ships to its fleet, with Destiny and Adventure launching in 2025. Contrary to popular belief, the ships are family-oriented and kid-friendly, but aren’t cheap. They are premium offerings targeting affluent consumers and households costing more than mainstream cruise lines in the transportation sector, like Carnival Corp. & plc NYSE: CCL.

Barbarians Await at Every Gate, But Disney’s Moat Is Wide

Disney is not without competition at every corner. In the Entertainment segment, it faces off with other studios and streaming networks from Comcast Co. NASDAQ: CMCSA, Peacock, Warner Bros Discovery Inc NASDAQ: WBD, Max, and the 800-lb gorilla Netflix Inc. NASDAQ: NFLX. With its Experiences segment, it also faces off with Comcast, which is opening its new Universal Epic Adventure theme park just 15 minutes from its flagship Disney World in Orlando, Florida.