By Jack Hough

Walt Disney stock jumped 11% to just over $102 on Wednesday on a well-received earnings report and plans for a new theme park in Abu Dhabi. To borrow from Star Wars film subtitles, is this a new hope for shareholders or more or a phantom menace?

After all, barely a year ago, shares gained 11.5% in a day after Disney beat earnings estimates but missed on revenue; made more money in streaming despite a drop in subscriptions; and announced some ventures, like a stake in a videogaming company and a new Moana movie.

"We saw this movie last year, and we didn't like the ending," wrote activist investor Nelson Peltz's firm at the time. Sure enough, shares closed above $110 that day and slid to barely $92 just before the latest report.

Then again, the latest report contains some genuinely promising signs. Start with streaming. Disney reported a modest gain in subscribers, whereas Wall Street had predicted a modest decline. That suggests that price hikes aren't hurting overall demand. Revenue rose nicely, and operating profit multiplied to $336 million for the quarter from $47 million a year ago. For the fiscal year running through September, Disney is targeting a streaming profit of $875 million.

That's a pace that suggests that streaming profits could overtake those from traditional television in two to three years, which would help ease investor fears over show business turning less lucrative.

Disney's most important unit, parks and experiences, reported a 13% increase in domestic profits, including the launch of a new cruise ship and higher spending by park visitors. That helps counter the argument that consumer angst will cut into vacation spending -- although higher tariffs arguably haven't yet fully made their way into household budgets.

The Abu Dhabi announcement might seem like a sideshow for now. A park like that takes two years to plan and five to build, CEO Bob Iger told reporters. Comcast owns the new-park discussion for now, with its Universal Epic Universe in Florida opening later this month.

But consider some ways in which the Abu Dhabi deal is excellent news for investors. The city is a thriving hub for travelers of means and capital of the United Arab Emirates, which has a large sovereign-wealth fund and a desire to diversify its economy away from oil, and especially toward tourism. If Disneyland Abu Dhabi were a chicken sandwich restaurant, we might call this a franchise model, in that Disney's U.A.E. partner, Miral Group, will operate the park and pay royalties to Disney. But Miral will also fund the construction. Disney will provide design expertise and operational oversight.

In other words, Disney's balance sheet gets away without a scratch. The financial risk of an adverse geopolitical shift down the road is minimized. The royalties can help fund Disney's considerable plans for park expansions in Florida and California. Disneyland Abu Dhabi could help boost regional demand for Disney merchandise and entertainment. Meanwhile, Abu Dhabi gets the benefit of a Disney sheen on its pitch for family-friendly tourism.

It makes an investor wonder what other world capitals are a) home to a large and rising middle class; b) far by plane from the six, soon to be seven, Disney theme park resorts; and c) popular with tourists, and relatedly, not irredeemable pariahs among the world's democracies. Rio de Janeiro? Maybe not -- Brazilians are already a key source of traffic to Disney World in Florida. South Koreans have Tokyo Disney Resort. Singaporeans have Hong Kong Disneyland. And soon Delhi will have Abu Dhabi. If you would like to pitch a city, direct it to Disney parks head Josh D'Amaro, who looks more and more like a favorite to succeed Iger as CEO.

Disney's quarterly report can't quite be called a blowout, but it was solid enough to easily top low expectations. The company now expects operating income for its full fiscal year to rise 18%, versus an earlier forecast of 13%. The peak for Disney's earnings per share remains $7.08, recorded in fiscal 2018 when the Avengers were dominating the box office. At its current trajectory, and barring a significant downturn in the economy, Disney could get back to that level of earnings in two to three years -- and hopefully to the $140 to $150 a share it saw just before the Covid-19 pandemic. Investors will have lost a decade, but Disney will have weathered a television shift that shattered the stock prices of some of its Hollywood rivals.

Write to Jack Hough at jack.hough@barrons.com

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May 08, 2025 00:30 ET (04:30 GMT)

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