Disney stock has had a mixed 2025 thus far, declining by about 3% year-to-date although it remains up by about 20% since the beginning of 2024. Despite the mixed performance, we believe the company’s growing streaming business is likely to drive its stock this year led by continued subscriber growth, stronger pricing, and strategic moves such as ad-supported tiers.
Disney has devoted considerable resources to its streaming operations in the last few years, and it’s finally starting to pay off. Over the last quarter, the direct-to-consumer segment brought in $5.8 billion in revenue, a 15% increase year-over-year, while operating profits soared to $321 million, compared to a $387 million loss during the same period last year. Disney+ added 4.4 million core subscribers last quarter, excluding the lower-priced Disney+ Hotstar service in India. Disney had about 123 million subscribers on its core Disney+ services, up 9% compared to the last year, while the Hulu service had about 52 million subscribers, up about 7% compared to last year. Besides subscriber growth, Disney’s strategy of raising prices has also been a key driver of revenue growth. For instance, the ad-free Disney+ plan saw a $2 price hike to $16 in October, following a similar increase in 2023. This indicates strong pricing power and an engaged user base that is willing to absorb higher costs.
Taking A Leaf Out Of The Netflix Playbook
Netflix pulled two valuable levers to drive growth over the past two years, adding an ad-supported streaming plan while cracking down on password sharing. The strategy was largely responsible for Netflix stock’s 70% plus surge over the past year. Disney, too, is now using the same playbook. Disney’s ad-supported tier appears to be thriving. About half of U.S. Disney+ subscribers now opt for the ad-supported version, with 37% of active subscribers currently on these plans. In fact, Disney says that it has been intentionally pushing users toward ad-supported plans by making ad-free options more expensive, and there’s a good reason for this. The broader streaming industry has doubled down on ad-supported tiers as they bring in more revenue per user, given that they generate revenue from both subscription fees and advertising dollars. Ad rates could also be favorable for Disney, given its ability to better target users and the appeal of its high-quality, family-oriented content. Disney has also been rolling out the paid-sharing feature. The option was introduced in the United States in September 2024, allowing members to add a user outside their household for an additional fee starting at $7 per month. Netflix launched this option in the U.S. in May 2023 with solid results and we could see similar trends with Disney as well.
Now, Netflix is still ahead of Disney in the streaming race. The streaming specialist reported that it had 283 million subscribers globally as of Q3 2024 (Netflix reports Q4 results on January 21), a 14% year-over-year increase led by its crackdown on account sharing and its advertising push. In comparison, Disney has a total of about 175 million subscribers across Hulu and the core Disney+ offerings, growing at a slower 8% compared to last year. However, Netflix has indicated that it would stop reporting its subscriber figures from 2025 onward, an indication that it expects subscriber growth to cool off. Disney, on the other hand, could continue to benefit from its paid-sharing as well as its broader lineup of offerings, including Disney+, Hulu, and ESPN+.
Profitability Could Pick Up
Disney’s marketing costs for its streaming business are also trending lower as the platform matures. Disney also offers Disney+, Hulu, and ESPN+ together as a bundle for as little as $17 per month and this should make the service stickier, improving customer retention and lowering churn. This bundling strategy could help cut costs, while creating cross-selling opportunities that Netflix potentially can’t replicate.
We also believe that the investments Disney makes toward its streaming business will have a longer lifetime value. Unlike Netflix, which monetizes its content investment solely via monthly subscription fees, Disney has a much larger value chain, given its theatrical business, theme parks, merchandise, and licensing operations. Disney’s ability to monetize content across multiple platforms could enable it to better justify higher content spending. Disney’s vast intellectual property library is also a key for the company. The company has iconic franchises such as Marvel and Star Wars, as well as Pixar and its legacy animation assets. The company’s film studio saw solid momentum over 2024 with three of its releases – Moana 2, Inside Out 2, and Deadpool & Wolverine crossing over $1 billion at the global box office. Lion King prequel Mufasa was also a sleeper hit, grossing over $700 million. This strong performance in film production should ensure a steady pipeline of high-quality content for Disney’s streaming platforms, further strengthening its position.
The decrease in DIS stock over the last 4-year period has been far from consistent, with annual returns being more volatile than the S&P 500. Returns for the stock were -15% in 2021, -44% in 2022, 4% in 2023, and 24% in 2024. The Trefis High Quality Portfolio, with a collection of 30 stocks, is much less volatile. It has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could DIS face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?
We value Disney stock at $130 per share about 21% ahead of the current market price. See our analysis of Disney’s valuation for a closer look at what’s driving our current price estimate for Disney. Also, see our analysis of Disney revenue for a closer look at the company’s key revenue streams and how they have been trending.
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