Disney (Minutes): Committed to double-digit percentage growth in earnings next year

The following is a summary of the 4Q25FY earnings call minutes for $Disney(DIS.US) organized by Dolphin Research. For a review of the financial report, see "Disney: Short-term Pressure but Guidance Unchanged, Can Iger Turn the Tide Before Leaving?"

I. Review of Core Financial Information

1. DTC Net User Growth Exceeds Expectations: In the fourth quarter, streaming user growth continued to rebound, with Disney+ adding 4 million net new users (bundled packages) and Hulu adding 8.6 million (driven by the resumption of Charter cooperation, brand globalization, etc.), both exceeding market expectations. The growth was mainly driven by high-quality content, the globalization of Hulu, and the unified bundling of internal streaming services, with 80% of new users opting for the Disney+, Hulu, and ESPN three-in-one package.

2. Parks Underperform Expectations, Competition Not Without Impact: Last quarter, the park business seemed unaffected by Epic's competition, with more of a natural slowdown, especially as official website bookings still grew 5-6% year-on-year. However, actual domestic park attendance fell about 4% year-on-year (calculated by Dolphin Research), which we attempt to explain as Epic's competitive impact mainly affecting local visitors, thus not reflected in booking figures.

However, the company's official next-quarter booking growth rate has also slowed to 3%. Following this trend, the first-quarter park base business may still face a decline, with the revenue contribution from two newly operated cruise ships not fully realized in the current period. The cruise business is the main growth line for the 2026 fiscal year experience business. However, upfront investment costs and operational costs also need to be amortized first, so next quarter's revenue and profit still face pressure.

This may also be the main area of market dissatisfaction with the financial report, but the company stated in the call that fourth-quarter park demand was not weak, Epic's competitive impact is controllable, and the impact on Disney is far less than on other peers. All parks are currently expanding, including a new theme park in Abu Dhabi, with five more cruise ships to be operational in the coming years.

3. Positive Feedback on New Version of ESPN: Fourth-quarter sports business growth was flat, meeting expectations. Besides the inherent decline in viewership leading to slow growth, the restructuring impact of India's Star (reflected in investment income after divestment) was also within the cycle. However, the new version of ESPN, which integrates cable and streaming content, is currently operating well, with subscription growth mainly from 1) existing multi-channel subscription users and 2) new users who have never engaged with ESPN, some of whom directly opted for the highest-tier ESPN package. Additionally, benefiting from events held this quarter, such as the US Open, NFL, and college football games, ESPN achieved an 8% increase in advertising revenue.

4. Content Cycle Not Yet Ended: Fourth-quarter content sales revenue fell 26%, mainly due to the high base from last year's global top 2 blockbusters "Inside Out 2" and "Deadpool and Wolverine." However, the content cycle is not over, as the company's 2026 fiscal year slate remains rich, with upcoming releases including sequels to "Zootopia," "Avatar," "Toy Story," "The Devil Wears Prada," and more.

5. Cable Business Continues to Weaken: Still the weakest business line, continuing to decline by 16% in the fourth quarter. Next quarter's pressure is also significant, not only due to the industry trend of cable TV but also because of the political ad boost from last year's US election.

6. Key Financial Indicators Overview

II. Detailed Content of the Earnings Call

2.1 Core Information from Executive Statements

1. Overall Performance and Shareholder Returns:

The company's quarterly and annual earnings performance was solid, with core financial indicators continuously improving. Adjusted EPS for the 2025 fiscal year grew 19% year-on-year, achieving a 19% compound growth over the past three years; management expects EPS to continue double-digit growth in the 2026 fiscal year.Thanks to strong cash flow, the company announced an increase in next year's stock repurchase scale to $7 billion, doubling compared to the 2025 fiscal year, and a 50% increase in dividends to $1.50 per share, a 50% increase compared to the 2025 fiscal year dividend ($1 per share).

2. Film Content and Brand Assets Continue to Show Strong Influence:

The live-action version of "Lilo & Stitch" became the annual global box office champion, driving over $4 billion in IP-related merchandise sales growth. The film garnered 14.3 million views within the first five days of its release on the Disney+ platform, becoming the second most popular live-action film produced by Disney on the platform.

"Predator: Badlands" set a new series best opening, driving the company to surpass $4 billion in global box office for four consecutive years.

Movies scheduled for release in the 2026 fiscal year include: "Zootopia 2," "Avatar: Fire and Ash," "The Devil Wears Prada 2," "Mandalorian and Grogu," "Toy Story 5," the live-action film "Moana," "Avengers Dooms Day," and several major releases next year to build future growth momentum.

Upcoming shows in the next few months include the new season of "Paradise," "Secret Lives of Mormon Wives," "Percy Jackson the Olympians," "American Idol" talent show, and the revival of the comedy "Scrubs."

We are also very pleased to bring audiencesTaylor Swift's documentary series "End of the Era," and herconcert film "The Eros Tour."

3. Streaming Business Maintains High Growth with Significant Profit Improvement:

Fourth-quarter operating income grew 39% year-on-year, reaching $1.3 billion for the year, an increase of $1.2 billion from last year, exceeding expectations. In October, the company advanced the globalization of the Hulu brand, continuing efforts to integrate all domestic entertainment content into one app, simplifying user experience, fully showcasing the value of our diverse content, and driving global market development. For key markets, we adopt a cautious and orderly development strategy and are confident in our long-term development.

4. Sports Business: ESPN Completes Integration

With the full launch of ESPN's direct-to-consumer service, we have entered a new era; at the same time, we have upgraded and optimized the ESPN app,making all ESPN channels and services directly available to users. Fans' reactions have been very positive, especially with the upgraded ESPN app. The app has added various features, such as "multi-screen viewing," "SportsCenter" (allowing users to watch live events anytime), and real-time game data, fantasy sports games, and other related features. The viewership of various live sports events we offer remains stable: across ESPN's channels, viewership on ABC has increased, with this quarter's ratings up 25% from the same period last year.

5. Experience Business Achieves Best Performance in History, Global Expansion Accelerates.

Fourth-quarter experience business revenue grew 13% year-on-year, with an 8% annual growth, both reaching new highs.Two new cruise ships, Destiny (operating this month) and Adventure (operating in March), are about to be operational.

This spring, we are excited to launch the "Frozen" themed area at Disneyland Paris.All our theme parks are currently undergoing expansion projects; additionally, five new cruise ships are planned to be operational in the coming years; we are also planning to build a new theme park in Abu Dhabi.These strategic investments we are currently making will help ensure our products and services remain at the forefront of the industry, attracting visitors from around the world.

Overall, this quarter marks another outstanding fiscal year for the company. We continue to advance various plans according to established strategic goals, preparing for the future, committed to providing the highest quality entertainment products, and creating more value for shareholders.

2.2 Q&A

Q: What early findings have emerged regarding user acceptance, engagement behavior, and product mix since the launch of ESPN's direct-to-consumer (DTC) business this year? Will this product change ESPN's long-term business outlook? Additionally, regarding the 2026 cash flow expectations, are there any factors other than the $1.7 billion tax to consider?
A: The new ESPN app is currently running well, clearly attracting two core user groups: one is existing subscribers who wish to retain multi-channel linear packages while gaining richer features through the app, with account authentication rates "very encouraging"; the other is new users who have never subscribed to cable TV but wish to engage more deeply with ESPN, many of whom directly opted for the premium "Ultimate ESPN" package aimed at "never subscribed to cable TV" audiences.

Users have high usage of new features like SportsCenter and vertical highlights (Verts), with algorithms able to more accurately push sports content that matches interests after user likes, enhancing user experience and increasing the value of advertisers on the DTC platform.

Management believes this product is an important step in consolidating ESPN's future development direction, bringing positive impacts to business prospects by enhancing interactive experiences through year-round coverage of tens of thousands of sports events on top of live events.

In terms of cash flow, management noted that excluding the timing difference of cash tax payments, the base free cash flow growth rate is about 28% year-on-year, mainly driven by strong operating income growth and the gradual decline of high-intensity investments over the years, the company expects free cash flow to continue growing in the coming years, providing greater financial flexibility for stock repurchases and dividend increases.

Q: How does management assess the growth potential of the film department this year and in the coming years? Additionally, regarding the broadcast dispute with YouTube, has the company reserved a buffer in its earnings guidance to address potential blackout impacts?

A: Management expressed great optimism about the future slate, considering the remaining lineup for this year to be the strongest in recent years, including "Zootopia 2," "Avatar: Fire and Ash," "The Devil Wears Prada 2," "Mandalorian and Grogu," "Toy Story 5," the live-action film "Moana," "Avengers Dooms Day," etc., and the 2027-2028 slate is expected to be as competitive as 2026.

While not every film can succeed, significant box office breakthroughs have been achieved over the past year, with two films surpassing $2 billion in global box office, and "Lilo & Stitch" becoming the annual box office champion and performing well on streaming, thus management is confident in the studio's long-term development.

Regarding the YouTube broadcast rights dispute, management emphasized that the possibility of extended negotiations was considered when formulating performance guidance, and potential impacts were hedged, with related impacts mainly from lost revenue and increased costs due to user churn. (As of November 16, Disney channels have returned to YouTube)
Q: How will Disney+ develop into a super app that leads to Disney's entire ecosystem in the future? Additionally, how does management view the possibility of achieving sustained double-digit growth in the DTC business through increased user engagement and ad monetization?

A: Disney+ is undergoing the largest product and technology upgrade since its launch in 2019, aiming to create a more personalized and attractive unified app experience, deeply integrating with the global comprehensive entertainment brand Hulu. In the future, Disney+ is expected to become the core entry point connecting all Disney businesses, including theme parks, hotels, cruises, and gaming ecosystems, with AI further supporting immersive content experiences and UGC creation, bringing new opportunities for full-ecosystem interaction. Meanwhile, the company is exploring more gamification features through cooperation with Epic Games.

In the DTC business, management emphasized driving sustained double-digit profit margins through revenue growth and operational leverage, rather than relying on cost reductions; the goal is to achieve double-digit revenue growth in the future and significantly improve profit margins after 2026, clearly viewing DTC as an important long-term growth engine for Disney.

Q: Facing the upcoming wave of industry mergers and acquisitions, will Disney participate? If not, will there be concerns about competitors becoming stronger as a result? Additionally, can you share trends in the advertising business in CTV, linear TV, and sports segments, and the outlook for the 2026 fiscal year?

A: Disney will not comment on specific M&A cases, but the company has built a very complete IP portfolio through acquisitions of Fox, Lucasfilm, Pixar, etc., over the past decade, so there is currently no need to actively participate in large-scale mergers and acquisitions, and will observe industry changes with a "wait and see" attitude, while paying attention to competitors' moves, but is very satisfied with its own layout.

In terms of the advertising business, the company's overall advertising revenue grew about 5% last year, with sports-related advertising performing well; despite increased supply in the DTC market, Disney's CPM has increased over the past two quarters, indicating a positive trend. Looking ahead to 2026, the company expects advertising business growth to continue, despite the base effect of political ads in Q1 last year, the overall trend remains positive.

Q: What is the growth driver for the experience business in the 2026 fiscal year? How much do revenue and profit margins contribute? How will NBA investments create value? Additionally, what is the current demand trend for theme parks?

A: The main growth in the experience business in 2026 comes from the cruise business—as the upfront costs of new ships are gradually absorbed, the second half of the year will become the growth core; at the same time, price increases and visitor growth remain key drivers, and the consumer products business driven by the film slate will also contribute incrementally.

Regarding NBA investments, due to the timing of copyright cost recognition, annual profits may fluctuate, but the NBA, as a top sports asset, can attract a large audience and advertisers, strategically valuable, and will bring stronger growth to ESPN in the second half of the year.

In terms of theme parks, first-quarter bookings grew about 3% year-on-year, with a positive trend for annual bookings, and the company remains optimistic about overall demand.
Q: Will Disney further become a broader streaming bundling service provider? What impact does the ESPN bundling package have on Disney+ and Hulu? Have you observed a decrease in user churn rate or a reduction in customer acquisition costs?

A: Bundled package users generally have higher quality, with a significantly lower churn rate than single subscription users. About 80% of new ESPN users this quarter chose the "three-in-one package" of Disney+, Hulu, and ESPN, significantly reducing churn rates.

Additionally, cross-platform bundling with other platforms (such as cooperation with MAX) has also effectively increased subscriptions for both parties. The company has discussed further bundling cooperation opportunities with multiple enterprises, believing that this model can sustainably bring new users and provide space for future expansion.

Q: Was domestic theme park attendance weak in the fourth quarter? What were the main reasons? What is the demand and profit margin outlook for the cruise business?

A: Domestic theme park demand was not weak, with overall performance meeting expectations. The launch of Epic Universe park did have an impact on the market, but the greater impact was on other competitors in Florida, rather than Disney itself. In terms of the cruise business, demand is very strong, with new capacity quickly absorbed, and occupancy rates remaining at historical highs. Although specific profit margins were not disclosed, the company emphasized that the cruise business has strong pricing power and the highest satisfaction, making it a very attractive business segment with considerable profit margins.

Q: How will the cost structure of the DTC business be balanced in 2026? Is there room for cost savings while continuing to invest in technology and content? Additionally, what impact does the "53-week fiscal year" have on the annual performance, and is EPS still expected to achieve double-digit growth?
A: The DTC business will continue to maintain a considerable revenue growth rate in 2026, with the goal of achieving double-digit revenue growth. On the cost side, the company will maintain reasonable investment in content and programming, while moderately increasing investment in international markets with high growth potential, and continuing to increase product and technology construction; on this basis, as the integration of the two major businesses progresses, there is also some room for savings in sales and management expenses. But more importantly, management expects to achieve "revenue growth faster than expense growth" through operational leverage, thereby gradually improving profit margins.

Regarding 2026 being a year with 53 weeks, management stated that its specific contribution needs to be adjusted and evaluated closer to the fourth quarter, combined with past experiences of the 53rd week, and will provide quantitative guidance to the market at an appropriate time; overall, the company's current goal is to achieve double-digit EPS growth while maintaining healthy growth in core businesses.

Q: How does Disney view the opportunities and risks of licensing content to AI video creation platforms? What role can generative AI play in production costs and operational efficiency in the future?

A: Disney has engaged in in-depth discussions with multiple AI companies, focusing on both protecting its IP and creative assets and exploring opportunities to enhance interactive experiences with AI. Current discussions are progressing positively, and the company hopes to eventually form an industry consensus or cooperation agreement to ensure effective protection of IP rights.

Looking ahead, the efficiency improvement potential of generative AI is enormous, not only improving content production processes but also optimizing overall company operations, benefiting everything from employee collaboration and customer service to data analysis. Especially on direct-to-consumer platforms, AI will create more dynamic content experiences and empower users to create content. Meanwhile, the company also emphasized maintaining user experience and its own value in negotiations with YouTube, striving to reach a fair agreement as soon as possible.

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