The Walt Disney Company (DIS) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights several positive developments: 20% EPS growth, strong performance in the Experiences segment, and increased sports viewership. The Q&A section reveals optimistic management sentiment, especially regarding ESPN's NFL deal and the integration of Hulu into Disney+. Despite some deferred guidance, the overall outlook is positive, with strong domestic park performance and new cruise line expansions. These factors suggest a likely stock price increase, aligning with positive sentiment.

Key Financial Performance

Revenue from Lilo & Stitch The live-action Lilo & Stitch recently crossed the $1 billion mark at the worldwide box office, making it Hollywood's first film to reach that milestone this year and Disney's fourth billion-dollar film in just over a year.

Consumer products revenue from Lilo & Stitch Lilo & Stitch is on track to become the company's second largest consumer products merchandise franchise this year behind only Mickey Mouse with more than 70% revenue growth compared to last year.

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Operating Highlights

Live-action Lilo & Stitch: Crossed $1 billion at the worldwide box office, becoming Hollywood's first film to reach that milestone this year and Disney's fourth billion-dollar film in just over a year. It is on track to become the company's second largest consumer products merchandise franchise this year with more than 70% revenue growth compared to last year.

Marvel's The Fantastic Four: First Steps: Successfully launched into the Marvel Cinematic Universe with rave reviews.

Upcoming releases: Highly anticipated titles include Zootopia 2 and Avatar: Fire and Ash.

Streaming integration: Hulu will be fully integrated into Disney+ to create a unified app experience, offering branded and general entertainment, news, and sports. Hulu will become the global general entertainment brand, replacing the Star tile on Disney+ internationally.

ESPN's direct-to-consumer offering: Launching on August 21, it will include features like multiview, enhanced personalization, integration of stats, betting, fantasy sports, and commerce. ESPN content will also be accessible within Disney+ for bundle subscribers.

NFL partnership: ESPN will acquire NFL Network and other media assets, with the NFL receiving a 10% equity stake in ESPN. Expanded NFL highlight rights and additional features for ESPN's DTC offering are included.

WWE partnership: ESPN will be the exclusive home for WWE Premium Live Events.

Disney+ app improvements: New features and a more personalized homepage will be implemented, culminating in the unified Disney+ and Hulu app experience next year.

Disney Cruise Line expansion: Two new ships, Disney Destiny and Disney Adventure, will launch later this year, with the latter being the largest ship ever and the first to be docked in Asia.

Theme park expansions: Projects include new areas like World of Frozen at Disneyland Paris, Villains and Cars-themed areas at Magic Kingdom, Monsters, Inc. at Disney's Hollywood Studios, and an Avatar-themed destination at Disney California Adventure. A new theme park is also coming to Abu Dhabi.

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Risk or Challenges

Economic and Geopolitical Conditions: The company acknowledges risks related to economic and geopolitical uncertainties, which could impact its operations and financial performance.

Regulatory and Legal Developments: Potential challenges from legal and regulatory changes are highlighted as risks that could affect the company's strategic plans and operations.

Market for Advertising: The company faces risks related to the advertising market, which could impact revenue generation, particularly in its streaming and media businesses.

Execution Risks: Execution risks are mentioned as a potential challenge in implementing strategic initiatives, such as the integration of Hulu into Disney+ and the launch of ESPN's direct-to-consumer offering.

Competition: The company operates in a highly competitive industry, which poses risks to its market share and profitability.

Supply Chain Disruptions: Although not explicitly mentioned, the company's global operations and expansion projects could face risks from potential supply chain disruptions.

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Guidance & Outlook

Streaming Business: Disney announced the full integration of Hulu into Disney+ to create a unified app experience. This is expected to enhance subscriber engagement, reduce churn, improve operational efficiencies, and increase advertising revenue. Hulu will become the global general entertainment brand, replacing the Star tile on Disney+ internationally by next year. Improvements to the Disney+ app, including new features and a personalized homepage, will be implemented over the coming months.

Sports Streaming: ESPN will launch its direct-to-consumer offering on August 21, providing its full suite of networks and services directly to fans. The enhanced ESPN app will include features like multiview, enhanced personalization, integration of stats, betting, fantasy sports, and commerce. ESPN will also integrate its content into the Disney+, Hulu, and ESPN bundle.

NFL Partnership: ESPN and the NFL announced a partnership where ESPN will acquire NFL Network and other media assets, with the NFL receiving a 10% equity stake in ESPN. This includes expanded NFL highlight rights, interactive features, and the ability to sell and bundle NFL+ Premium to ESPN DTC subscribers starting in the 2025 season.

Theme Parks and Experiences: Expansion projects are underway globally, including new themed areas at Magic Kingdom, Disney's Hollywood Studios, and Disneyland Paris, as well as a new theme park in Abu Dhabi. Disney Cruise Line will launch two new ships, the Disney Destiny and Disney Adventure, later this year, with the latter being the largest ship and the first to be docked in Asia.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you elaborate on the NFL relationship and its impact on ESPN's business, including revenue and subscriber growth?

A:The NFL deal provides ESPN with more NFL games than ever before, increasing from 22 to 28 windows. The acquisition of the NFL Network will integrate its games into ESPN's direct-to-consumer app, enhancing the app's value. Additional features like fantasy integration, betting, personalized sports center, and commerce opportunities will improve user experience. Economically, the deal is expected to be accretive in the first year post-closing, with increased revenue and operating income for ESPN, reduced churn, and advertising benefits.

Q:How will integrating Hulu into Disney+ accelerate DTC growth and impact Hulu as a standalone app?

A:Combining Hulu and Disney+ will create a better consumer experience, reduce churn, and improve advertising packaging. The integration will also allow for bundling opportunities with ESPN's direct-to-consumer app. Hulu as a standalone app will be phased out, and the combined platform will operate on a single tech stack, offering efficiencies and potential price elasticity.

Q:Can you provide insights into the fiscal '26 guidance for Experiences and the ESPN app's engagement expectations?

A:Management deferred detailed fiscal '26 guidance to the Q4 call. However, they noted that the ESPN app will engage sports fans across multiple platforms, including pay TV and streaming. The app will offer more features and sports coverage than linear channels, aiming to reach fans wherever they are.

Q:What is driving the acceleration in domestic parks and cruises, and how should we think about content spend for fiscal '26?

A:Domestic parks are seeing strong per capita spending and high cruise ship occupancies, with forward bookings up 6%. Content spend guidance for fiscal '26 was deferred to the Q4 call, but management emphasized a disciplined approach to content investment.

Q:What is the impact of the new ship launching in Singapore on Disney's businesses?

A:The new ship, the largest ever built by Disney, will sail with 7,000 passengers and has seen robust sales. It will serve as a floating ambassador for the Disney brand in Southeast Asia, a region with strong brand affinity, creating significant opportunities for Disney.

Q:How does Disney approach launching new IP in today's market, and what are the tax benefits from recent legislation?

A:Disney continues to focus on creating new IP while leveraging older IP through sequels and reboots. The company sees opportunities in both areas. Recent tax legislation will have a positive cash tax impact, benefiting Disney's cash flow.

Q:Can the ESPN platform launch accelerate DTC growth, and what are the benefits of bundling NFL+ Premium?

A:The ESPN platform launch, priced at $29.99 for Disney+, Hulu, and ESPN, is expected to grow the subscriber base and increase engagement, reducing churn. Bundling NFL+ Premium with the trio bundle offers additional opportunities to enhance engagement and lower churn.

Q:What is the financial outlook for Disney's Cruise Line expansion?

A:The expansion, including new ships, is expected to drive significant growth. Half of next year's bookings are already secured, with newer ships seeing even higher demand. Financial details are aligned with the multiyear guidance provided for the Experiences business.

Q:What are the engagement trends for Disney+ and Hulu, and how does Disney plan to achieve its DTC margin objectives?

A:Engagement has increased with the integration of Disney+ and Hulu, and further improvements are expected with full integration. Disney aims to achieve and surpass its 10% DTC margin target through a growth-oriented strategy, focusing on higher engagement and international market penetration.

Q:What are the trends in domestic theme park attendance and per capita spending?

A:Domestic theme parks have seen an 8% year-over-year increase in per capita spending, the highest in over two years. Attendance trends remain strong despite competitive offerings, with a balanced approach to growing both attendance and per capita spending.

Q:What is Disney's strategy for the ESPN sports offering and potential bundling opportunities?

A:Disney is exploring opportunities to bundle other companies' sports offerings with ESPN to improve consumer experience and engagement. The goal is to simplify access to sports content and serve consumers better by aggregating sports in one destination.

Q:Review of Unclear Management Responses

A:Management avoided providing specific fiscal '26 guidance, deferring details to the Q4 call. They also did not offer specifics on content spend for fiscal '26 or detailed financial implications of the Cruise Line expansion, citing the need for further analysis and updates in future calls.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call highlights strong financial performance with increased operating income across segments and successful strategic initiatives like the ESPN direct-to-consumer launch. The Q&A session reveals optimism for future cash flow and growth in various business areas, despite some uncertainties like the YouTube TV dispute. The integration of Hulu into Disney+ and partnerships like the NFL deal are positive indicators. However, the lack of detailed guidance on certain issues tempers the overall sentiment slightly. Given these factors, a positive stock price movement between 2% to 8% is expected.

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