To The Moon

Any discussion of $Walt Disney(DIS)$ ’s long-term strategy needs to start with entertainment. If the studios aren’t producing hit content, nothing else really matters for Disney.

Unfortunately, Disney no longer breaks out results from studios, cable, and streaming, so we get this conglomerate look at the entertainment business overall.

Within these results, we do know that cable is in decline. In fiscal 2025, linear network revenue was down 16% to $2.06 billion, and operating income dropped 21% to $391 million. There’s no indication that the decline has stopped, but it’s being overcome by growth at studios and streaming.

I’ll start with studios, which include Disney Animation, Lucasfilm, Marvel, and Pixar.

The box office is showing us that Disney is doing better than anyone else with films like Zootopia 2, Avatar: Fire and Ash, and Lilo & Stitch in 2025.

In 2024, the company had the top 3 at the box office globally.

I think we’re seeing the box office coming back, and Disney is set up for a big 2026 with Toy Story 5, Frozen 3, and The Mandalorian & Grogu. No one makes bigger hits than Disney for a global audience.

Putting a valuation on Disney’s studios is hard, but with about $8.5 billion in revenue from content sales and licensing (studios), I think the studios are worth more than WBD’s $85 billion price tag, so if we’re trying to value Disney let’s put a $100 billion valuation on the studios with some of that from the legacy ABC/cable assets that are stranded at the moment.

The streaming business is growing double-digits and has strong operating leverage, with operating income up 72% last quarter.

Streaming is now bigger than cable on a revenue basis with double-digit growth, and Disney is only behind YouTube and Netflix in subscribers and revenue. With subscriber growth and price increases for Disney+ and Hulu, could Disney’s streaming business alone be a $40 billion revenue business by the end of the decade with a 20% operating margin, as management has predicted?

I think so!

At 15x operating income, the streaming business would be worth $120 billion.

So, studios and streaming are worth ~$220 billion? That makes sense to me, given WBD’s $85 billion sale price and Disney’s better assets.

But there’s more.

Sports have been in a holding pattern, too, and that’s because cable is dying while ESPN streaming hasn’t yet become a viable standalone business. And to be frank, no one has figured out sports streaming yet.

I wouldn’t be surprised if ESPN is eventually spun off to stand on its own. That would make negotiations with sports leagues much cleaner and the economic of streaming clear to everyone involved. For now, it’s a bundling tool for Disney.

What’s ESPN worth? The NFL got in at a $30 billion price tag, and that seems conservative to me.

So, we have a $250 billion business so far.

And now we get to the good stuff. Disney’s real differentiation is turning the entertainment business into experiences and charging an arm and a leg to visit those experiences.

Experiences is the one segment that’s consistently grown and is now over $10 billion in operating income over the past year.

This is before we see a real impact of the cruise line expansion, including one late in 2025, one launching next month, and another four ships between 2027 and 2031.

Then there are expansions at every park around the world and a new resort in the UAE.

This is a business that could grow operating income at high single-digit rates for the foreseeable future.

At 15x operating income, it’s worth $150 billion, and I think that’s underestimating the potential.

Is a $400 billion valuation for all of Disney crazy?

I don’t think so, but the market has given Disney a market cap of just $185 billion and an enterprise value of $232 billion.

If new CEO Josh D’Amaro can unlock some of the value left in cable and ESPN, the remaining business may look extremely undervalued when it’s not weighed down by legacy assets.

At least, that’s the case for Disney stock today.