Disney (DIS) has reportedly formed a partnership with e-commerce giant and cloud services titan Amazon (AMZN) to enhance ad targeting for streaming television. Under this partnership, Amazon’s Demand Side Platform (DSP) will have access to Disney’s content library.
Commenting on the partnership, which is expected to launch in the third quarter of this year, Matt Barnes, vice president of programmatic sales at Disney Advertising, sounded optimistic, “By building a direct path connecting Amazon’s commerce insights to the full scale of Disney’s streaming ecosystem, we’re enabling greater accessibility to inventory and audience signals that translate into meaningful results for advertisers leveraging Amazon DSP.”
Now, although this is a positive development and makes the case for owning Disney stock even stronger, there are many more compelling reasons to own the “House of the Mouse.”
One of the most recognized global entertainment conglomerates, Disney’s operations span across media, TV & cable networks, streaming platforms, and experiences. Disney owns vastly popular intellectual property such as the Marvel Cinematic Universe, Mickey Mouse, and Star Wars, among others.
Commanding a market cap of $211.9 billion, DIS stock is up about 5.6% on a YTD basis and 15.5% over the past year. While the stock currently offers a dividend yield of 0.85%, Disney’s payout ratio of just 15.8% leaves enough room for growth.
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Disney continues to demonstrate meaningful operational momentum under CEO Bob Iger, with recent results pointing to a sustained recovery. Since Iger resumed his role, the entertainment giant has posted compound annual growth rates of 7.07% in revenue and 43.76% in earnings, an indication that the restructuring efforts are beginning to deliver.
Notably, in the second quarter of its fiscal 2025, Disney reported a top-line beat with revenue reaching $23.6 billion, up 6.8% from the year-ago period. The company also returned to profitability, swinging from a loss of $0.01 per share last year to earnings of $1.81 per share this quarter, comfortably surpassing analyst expectations.
Cash flow metrics came in strong. Operating cash flow surged to $6.8 billion, up from $3.7 billion in the same quarter last year, while free cash flow rose to $4.9 billion from $2.4 billion. Overall, Disney’s liquidity position remained solid as the company closed the quarter with a cash balance of $5.95 billion.
Looking ahead, analyst consensus points to forward revenue growth of 4.1% and earnings growth of 16%, both of which outpace the sector median estimates of 3.24% and 11.33%. With operational metrics trending higher and renewed investor confidence, Disney appears to be regaining its footing in the post-pandemic media landscape.
In this recent piece, I analyzed how Disney has opted for a two-pronged strategy to be on a sustainable growth path in the coming years. Headlined by its expansion in the physical realm, Disney is also making strategic moves in the digital space to streamline its offerings, along with undertaking new initiatives to develop new content.
Meanwhile, Disney has also agreed to take full control of the streaming platform Hulu by paying Comcast (CMCSA) an additional $439 million.
In Q2, total paid subscribers at Hulu were at 54.7 million, an increase of 9% from the previous year. Average monthly revenue per paid subscriber also increased slightly in the same period to $112.30, with popular shows like The Bear, Only Murders in the Building, and The Handmaid’s Tale grabbing eyeballs and driving growth.
Further strengthening Disney’s overall performance, the theatrical distribution segment recently received a significant boost from the unexpected box office success of Lilo & Stitch. Encouragingly, even prior to this release, the business had already shown signs of momentum.
In addition, Disney is setting the stage for another potential revenue catalyst with the planned rollout of a dedicated ESPN streaming platform. This new service would consolidate content from the traditional ESPN television channel, its existing subscription-based ESPN+ offering, and possibly include user-generated videos, creating a hybrid model somewhat akin to YouTube. Given ESPN+ already boasts more than 25 million subscribers, this expanded platform could generate substantial new revenue streams. Beyond subscriptions, additional upside could come from advertising, collaborations with sports betting operators, and other ancillary monetization channels.
Altogether, Disney’s approach, marked by thoughtful investments, adaptive pricing, and forward-looking leadership, places the company in a strong position to continue driving long-term shareholder value.
Overall, analysts have attributed a rating of “Strong Buy” for Disney stock with a mean target price of $126.69, which denotes upside potential of about 7.7% from current levels. Out of 29 analysts covering the stock, 21 have a “Strong Buy” rating, two have a “Moderate Buy” rating, and six have a “Hold” rating.
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On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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