A Deep Dive into Q4 Earnings, DTC Profits, and the Death of Linear TV

For nearly a decade, investing in The Walt Disney Company has felt like running on a treadmill. Despite launching a seemingly successful streaming service, building new worlds in its theme parks, and releasing billion-dollar blockbusters, the stock has been stuck in the mud, basically still trading at 2015 levels. It’s had some runs above that in that time frame briefly trading near $200 during the streaming gold rush but it has fallen off quite a bit since then.

The reason? A simple, terrifying metaphor: the melting ice cube.

Disney’s legacy business, linear television (think ABC, ESPN on cable, etc.), was a fortress of cash that funded the entire kingdom. But as consumers cut the cord, that fortress began to melt, and the ensuing flood threatened to drown everything else. The central question for Disney wasn’t just can you build a new business, but can you build it fast enough to offset the old one’s collapse?

With its fourth-quarter 2025 earnings report, Disney tried to gave its most confident yes to date but is the market buying it? With the stock down 7.75% for the day, I’m not sure it is.

The company didn’t just beat earnings expectations; it signaled a fundamental shift. It flexed its financial strength by announcing a 50% dividend increase (to $1.50 per share) and a plan to double its share repurchases to $7 billion in 2026. These aren’t the actions of a company on the ropes. They’re the moves of a heavyweight fighter stepping back into the center of the ring.

But to understand if the magic is really back, we have to look past the headline numbers and into the three core segments that tell the real story of Disney’s grand pivot.

Entertainment: The Good, The Bad, and The Profitable

The Entertainment segment is ground zero for Disney’s transformation. It houses the movie studios, the dying linear networks, and the all-important streaming (DTC) business.

The Good: DTC is Finally a Money-Maker

This is the headline that matters. After burning billions of dollars in a high-stakes gamble to catch up to Netflix, Disney’s direct-to-consumer (DTC) business is now starting to pay dividends.

For the full fiscal year, the Entertainment DTC segment (Disney+ and Hulu) generated a solid $1.3 billion in operating income for the year. This is a colossal turnaround from a $4 billion loss just three years ago. In Q4 alone, DTC operating income was up 39% to $352 million. Enrollment number were a positive too with total subs reaching 195.7 million, up 12.4 million over the prior quarter. That’s not too shabby.

Management isn’t just taking a victory lap; they’re pressing the accelerator. The strategy is now about integration and efficiency. Hulu is becoming the global brand for general entertainment, and in the U.S., the company is moving to consolidate all of our Entertainment content domestically within a single app. This one-app experience simplifies things for users, highlights the value of the bundle, and (most importantly for Disney) lowers churn.

Analysts on the earnings call pushed management on this, asking if the super app was just talk. The answer was a definitive no. Management sees a future where AI and new tech turn Disney+ into a portal to all things Disney, an engagement engine for commerce, theme park bookings, and even user-generated content. That seems like an interesting idea but also could sound like it worsens the user experience with stuff most people don’t care about and don’t want to see.

The Bad: The Linear TV Ice Cube Keeps Melting

While DTC was the hero, the linear networks segment was the anchor. Operating income here was down, dragged by—you guessed it—declines in advertising revenue driven by lower viewership. This is the structural decline in plain sight. It’s the melting ice cube the market has been fixated on, and it’s not going to refreeze. Disney is now in a race to manage this decline gracefully while it shovels cash into its new DTC lifeboat. Overall, Linear Networks revenue was down 12% for the year and down 16% for the quarter. Operating income was down 14% for the year and down 21% for the quarter.

You can tout the greatness of DTC but quarterly revenues were still down 6% for the quarter(partially also due to weakness in licensing/content which can be seasonal) and operating income was down 35%. For the year revenue was up 3% and operating income was up 19% which isn’t too bad and shows the improving margins on the DTC side driving improvements in operating income for this segment overall.

The Mixed: The Studio Fuel Tank

The movie studio is the engine that fuels the entire Disney flywheel—it creates the IP that becomes DTC content, theme park rides, and consumer products. The studio had a tough comparison to the prior year (which had Inside Out 2 and Deadpool & Wolverine), so results looked soft.

However, the power of the IP is undeniable. The live-action Lilo & Stitch was the highest-grossing Hollywood film of the year and drove a staggering $4 billion in merchandise sales. Looking ahead, management is very bullish on a monster 2025-2026 slate that includes Zootopia 2, Avatar: Fire and Ash, The Mandalorian and Grogu, Toy Story 5, and Avengers: Doomsday. You’ve got at least 4 out of 5 guaranteed hits there. I’ll let you guess which one isn’t.

That should mean pretty solid growth next year against a slightly weaker slate this year.

Sports: The Great (and Expensive) Migration

For years, the question for ESPN was, When? When would Disney finally rip the band-aid off and offer its crown jewel directly to consumers?

That when is now. Q4 saw the full launch of the ESPN direct-to-consumer service, and management is thrilled with the results.

The new app is successfully attracting new users (cord-nevers) and re-engaging existing cable subscribers with new features like Multiview and SportsCenter For You. But the most crucial metric? About 80% of new ESPN DTC subscribers are buying the trio bundle (Disney+, Hulu, and ESPN). This is a massive win, as bundled subscribers have significantly lower churn, which is the key to long-term streaming profitability.

This pivot isn’t cheap. Sports rights, like the new NBA deal, are eye-wateringly expensive. This is why Disney guided to low-single digit operating income growth for the Sports segment in 2026, with costs front-loaded. But this is a necessary cost of business. Disney is paying to move its most valuable asset from a dying platform (cable) to a growing one (DTC). The question becomes whether this melts the ice cube mentioned above even faster with people who stuck with cable(and also paid for other Disney channels they didn’t watch) only for the sports which are now more readily available via streaming.

Experiences: The Unsinkable Cash Cow

If Entertainment and Sports are in the middle of a complex metamorphosis, the Experiences segment (Parks, Cruises, Products) is an unsinkable battleship.

This division delivered record operating income for both the fourth quarter ($1.9B, up 13%) and the full year ($10B, up 8%). This segment is a fortress of cash, providing the financial stability needed to fund the company’s risky pivots elsewhere.

Growth is coming from everywhere. International parks like Disneyland Paris are booming. The Disney Cruise Line is expanding rapidly, with the Disney Destiny and Disney Adventure ships launching, bringing the fleet to eight.

But what about the Epic elephant in the room? With Universal’s new Epic Universe park creating massive competition in Orlando, analysts were rightfully concerned. Management’s response was confident: they called out the increased competition directly but noted that bookings for Q1 are still up 3% and that the competition seems to be impacting other Florida parks more than Disney. In short, Disney’s brand is holding its own.

What Wall Street Asked (And How Disney Answered)

The analyst Q&A session revealed what the market is really worried about.

• On the YouTube TV Dispute: Management was blunt. They’ve built a hedge into their financial guidance, meaning they fully expected a blackout. They’re confident that their deal proposal is fair and that, ultimately, they hold the cards because their content’s value is greater than the value of any other provider. They’re probably right, after all customers can simply go to another television offering like the majority Disney owned Fubo. YouTube TV can’t really replace it with another content provider.
• On Future M&A: Don’t expect any. When asked about industry consolidation, management stated, “we actually feel like we’ve got a great portfolio and we don’t need to do anything… We like the hand that we have.”
• On AI: It’s not just a buzzword. Management sees AI as a tool for two things: 1) Efficiency in production and back-office work, and 2) A massive opportunity to create more dynamic and more sticky DTC platforms, including adding tools for user-generated content.

The Investment Thesis: Pros vs. Cons

So, is Disney a buy at 2015 prices? It comes down to this:

The Pros:

• DTC is Finally Profitable: The $4B loss-leader is now a $1.3B profit center, with a clear path to 10% margins. The pivot is working. The growth is interesting as I feel like Disney+ has by far the smallest content slate but i guess the bundle aspect of it whether it’s with Hulu and ESPN or with Hulu and HBO Max(the latter of which I have) does well enough for people who turn on Disney+ every two months to watch one of the big tentpole movies. It’s still cheaper than going to movie theaters to see it.
• Unmatched IP: The studio slate is a monster. This IP fuels every other part of the business, from streaming to parks to merchandise.
• The Experiences Fortress: The parks and cruises are a high-margin cash-generation machine that provides a stable floor for the entire company.
• Shareholder Returns: The dividend hike and massive buyback show immense management confidence and a return of capital to patient investors.

The Cons:

• The Melting Ice Cube: Linear TV is a structural-decline business. It will be an anchor on revenue and profit for years to come Disney will need growth for years in DTC to offset that.
• Studio Inconsistency: The studio is a hit-driven business. A few big flops could slow the flywheel although that doesn’t seem to be a worry for the big slate of movies they have coming out in the next year or so.
• Cost of Sports: Live sports rights are one of the most inflationary assets on the planet. ESPN must constantly pay more to keep its moat. That makes it difficult to make that a very profitable business.
• Real Competition: Epic Universe is the first real threat to Disney’s Orlando dominance in decades and while Disney parks are a huge asset with a ton of moat. There’s only so much you can raise prices and add fast passes and other nonsense before you price a lot of people out of them. That will likely mean growth won’t be huge going forward as it’s not like they’re opening new parks very often(the next is slated for Abu Dhabi maybe 7 years from now).

The Verdict: Are You Buying the Pivot?

Disney’s stock is trading at 2015 prices because the market has been valuing it as a company tethered to a dying business (linear TV). The risk was that the DTC business would never become profitable enough to offset that decline.

In that time, Revenue’s have almost double but net income has only grown about 32% due to compressed margins(Linear TV margins are excellent and DTC haven’t been).

This Q4 2025 earnings report is the single most compelling piece of evidence that the pivot is not only happening but start to look fruitful.

The valuation now hinges on a new question. Is this $1.3 billion in DTC profit a one-time event, or is it the baseline for a new era of growth? If you believe this is the start of a new, profitable growth story—where a high-margin DTC business joins the high-margin Experiences business—then a stock price from 2015 is starting to look cheap.

Based on the next fiscal year’s, free cash flow, this is a stock that trades at around 5.1% free cash flow margins. For a stalwart like Disney, that’s not too bad a price but also nothing that screams cheap for a company growing its top line in the low single digits.

At $80, this is a buy. At today’s prices, it’s just reasonable.

Disclosure : This is not investment advice. Please talk to a qualified financial professional before making any investment decisions.