Shares in media and entertainment giant Walt Disney (DIS) fell 6% despite the firm posting forecast-beating Q1 sales and earnings. Instead, investors focused on rising costs and a potential hit to earnings as foreign tourists desert its US theme parks.
| Share price: $106 (-6%) | PE: 20x |
| Market cap: $190bn | Yield: 1.2% |
MOUNTING COSTS
For the quarter to December 2025, Disney’s revenue rose by 5% to $26 billion beating the consensus of $25.7 billion. Diluted EPS decreased from $1.76 to $1.63, but was still enough to beat the $1.57 average forecast.
Entertainment revenue increased 7%, while SVOD (subscription video on demand) sales including Disney+ and Hulu increased 11%.
However, segment advertising revenue dropped 6% due to fewer political ads than the previous year. Also, operating income in Entertainment and Sports fell due to higher programming and production costs and lower Sports subs.
The Experiences division, which includes theme parks, posted record quarterly revenue of £10 billion. Attendance at domestic parks was up 1% in the quarter while per capita spending rose 4%.
For Q2, the firm forecast a 40% increase in SVOD operating income and flat Entertainment income. However, Sports operating income is seen down by $100 due to the higher cost of programme rights.
Operating income at the Experiences division will see modest growth due to ‘international visitation headwinds’ at US parks. The group also faces higher costs at its cruise line business and for World of Frozen at Disneyland Paris.
For the full year, Disney is still projecting double-digit EPS growth and $19 billion in operating cash flow. It also expects to buy back around $7 billion of its own shares or around 4% of its market cap.
There is no shortage of cheerleaders for Disney, with Goldman Sachs and other brokers reiterating their Buy call this morning. However, the market reaction tells you all is not well at the entertainment giant.
CEO Bob Iger flagged the firm’s strong box office performance in 2025 with blockbusters like Avatar: Fire and Ash. The 2026 slate features more potential hits like a live-action Moana, Toy Story 5 and Marvel’s The Mandalorian & Grogu.
However, rising production costs are eating into Entertainment earnings, while rising programming costs are crimping Sports margins. Moreover, Disney shares have been range-bound between $80 and $120 for three years, and momentum has turned negative again. Avoid.
Read the press release here: https://investors.thewaltdisneycompany.com/
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