Disney shares are under pressure Wednesday after the entertainment giant reported mixed quarterly results. We think it’s an opportunity. Revenue in the three months ended June 28 increased 2% year over year to $23.65 billion, missing expectations of $23.73 billion, according to LSEG. Adjusted earnings per share (EPS) in the fiscal 2025 third quarter totaled $1.61, outpacing the LSEG consensus of $1.47. On an annual basis, adjusted EPS jumped 16%. The stock dropped more than 3% in early afternoon trading. Shares entered the day up a little over 6% year to date, slightly trailing the S & P 500. .SPX YTD mountain Disney’s year-to-date stock performance. Bottom line This wasn’t the cleanest quarter. Disney’s headline revenue and profit numbers were mixed, and it’s a similar story under the hood. Nevertheless, as we dug deeper into the results, we see strength in all the parts of the business that matter most. In that way, there’s a lot to like: Its direct-to-consumer streaming business continues to add subscribers and reported significantly better-than-expected profitability. The sports segment also reported better-than-expected profitability, and while ESPN revenue did decline slightly year-over-year, we think management is executing on a roadmap that will see the key business return to growth. A big part of that is a premium ESPN streaming offering set to launch later this month with features that have the potential to drive deeper engagement over time. Those include increased personalization and fantasy sports, alongside the ESPN suite of cable channels available on streaming for the first time. Its highly profitable experiences segment was the standout, outpacing expectations for both sales and earnings. Walt Disney World in Florida reported record third-quarter revenue, and the cruise business is “doing extremely well right now,” CFO Hugh Johnston said on the call. “Forward bookings look great, and we’re running at very high occupancies in terms of the cruise ships. In terms of thinking about bookings for experiences for the fourth quarter, right now, they’re up about 6%. So, we certainly feel positively about that as well.” Disney Why we own it: We value Disney for its best-in-class theme park business, which has immense pricing power. We also believe there’s more upside in the stock as management cuts costs, expands profit margins through its direct-to-consumer (DTC) products and finds new ways to monetize ESPN. Competitors: Comcast , Netflix , Warner Bros Discovery and Paramount Global Last buy: March 10, 2025 Initiation: Sept. 21, 2021 Ultimately, we believe the House of Mouse is standing on strong ground, and members will be well-served by taking advantage of this weakness. Demand for the Disney experience remains strong, with park-goers continuing to flock to the Florida resort in record numbers despite the opening of Universal’s Epic Universe in Orlando during the quarter (CNBC’s parent company Comcast owns Universal). That clearly didn’t dent demand. Meanwhile, Disney’s sports streaming offering is going through a major renaissance that we think ultimately drives deeper engagement and complements its broader strategy on bundling . Part of that involves more deeply integrating Disney+ and Hulu content now that it owns the entirety of Hulu. The premium ESPN service will be an exciting new layer, offering cross-selling opportunities as consumers are given the opportunity to bundle a best-in-class sports and entertainment offering. We’re therefore upgrading Disney shares to a buy-equivalent 1 rating and are increasing our price target to $135 apiece from $130. On Wednesday’s Morning Meeting, Jim Cramer suggested that investors who want to amass, say, a 100-share stake in Disney should buy 50 shares now and build it up from there. Commentary While the chart above clearly shows mixed results, the strength came where it matters most, as discussed above. Within Disney’s larger entertainment segment, direct-to-consumer is the primary focus for investors. Even though revenue was a bit light, its operating income was fantastic, coming in well ahead of expectations. It’s clear that the DTC business has turned the corner and is now very much a money making business. Disney+ added 1.8 million subscribers in the quarter, exiting with 128 million total subscribers. Disney+ and Hulu exited the quarter with 183 million subscriptions, an increase of 2.6 million versus the prior quarter. On the earnings call, CEO Bob Iger said Hulu was being fully integrated into Disney+. “This will create an impressive package of entertainment pairing the highest caliber brands and franchises, great general entertainment, kids programming, news and industry-leading live sports content, all in a single app.” He added, “over the coming months, we will be implementing improvements within the Disney+ app, including exciting new features and a more personalized homepage. All of which will culminate with the unified Disney+ and Hulu streaming app experience that will be available to consumers next year.” The performance of Disney’s linear networks — including the likes of ABC, Freeform, FX and its namesake Disney channel — was lackluster, but the cord-cutting dynamic is well understood on Wall Street. As a result, investors would be better served by a long-term focus that prioritizes the growth of DTC rather than the linear network woes. Disney’s sports segment is all about ESPN and its ongoing revitalization efforts. Earlier Wednesday, we learned that ESPN’s new streaming service will launch on August 21, include all content from the linear TV networks and cost $29.99 a month. “The enhanced ESPN app will be a sports fan’s dream, with key new features planned for launch, such as multi-view enhanced personalization, integration of stats, betting, fantasy sports and commerce, and a personalized SportsCenter,” Iger said on the call. “And fans with subscriptions to the Disney+, Hulu, and ESPN bundle will be able to watch ESPN content directly inside Disney+.” We also learned Wednesday that the streaming platform has inked 5-year deal with WWE to steam the latter’s premium wrestling events. Select events will also air on ESPN’s linear channel. On Tuesday evening, it was announced that ESPN has reached a deal with the NFL for media assets, in exchange for a 10% stake in ESPN. Clearly management is looking to launch the new ESPN streaming service with a bang, and its decision to offer a special bundle price for the first year — $29.99 a month for Disney+, Hulu and ESPN — should provide a nice boost to overall subscriber numbers. There was plenty to like with Disney’s experiences performance. In particular, domestic parks and experiences business saw a 22% growth in operating income. That was fueled by guests spending more money at its theme parks in Florida and California, coupled with positive contributions from the launch of the Disney Treasure in the first quarter of the year. With that ship now in its fleet, Disney saw higher passenger cruise days and higher occupied room nights. Iger offered updates on Disney’s major investments to expand its theme parks. “Expansion projects are underway across every one of our theme parks globally from a new World of Frozen land opening at Disneyland Paris in 2026 and to the Villains and Cars themed areas at Magic Kingdom to a Monsters Inc. area at Disney’s Hollywood Studios to an Avatar themed destination at Disney California Adventure, in addition to a new theme park coming to Abu Dhabi,” Iger said. The Abu Dhabi project was announced in May on the day of second-quarter earnings. Iger also noted that two more ships are on track to be added to Disney’s cruise fleet later this year: The Disney Destiny and the Disney Adventure, which is its “largest ship ever and the first to be docked in Asia, bringing our fleet to a total of 8 cruise ships operating around the globe,” he said. Guidance Disney increased its 2025 guidance as follows: Now targeting adjusted EPS of $5.85, up from $5.75, which would be an 18% increase compared with the prior fiscal year. The Street was looking for full year earnings of $5.78 per share. Direct-to-consumer operating income of $1.3 billion, compared with approximately $1 billion previously. Experiences operating income to increase 8%, up from prior guidance to be grow between 6% and 8% year over year. Disney Cruise Line preopening expense of $185 million, less than the $200 million previously forecast. Equity loss from its joint venture in India is now expected to be about $200 million, down from the previous call for a loss of about $300 million. The following was reaffirmed: Entertainment operating income up a double-digit percentage versus the prior year. Sports operating income up 18% year over year. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) 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We’re upgrading our rating on Disney thanks to a misguided market reaction to earnings