Disney Is Down 15% in 2026. With Netflix Stumbling, Is the House of Mouse a Contrarian Streaming Buy?

Netflix gave streaming investors a jolt last week. The industry leader reported second-quarter results that were fine on their own, but its forecast called for revenue growth to slow again in the third quarter, and the stock, already deep in a yearlong slide, fell further on Friday.

Walt Disney (NYSE: DIS) shareholders know the feeling. Shares of the entertainment giant have fallen about 15% in 2026, to roughly $96 as of this writing, and they trade about 22% off their 52-week high.

But there's an irony in the timing. While the market frets over the streaming leader's slowing growth, Disney's own streaming business has been moving the other direction -- toward faster growth and higher profits.

So, with the leader stumbling, is the House of Mouse the contrarian buy in streaming?

Image source: Walt Disney.

Behind the decline

Disney's sell-off this year wasn't baseless. In the company's fiscal first quarter of 2026 (the period ended Dec. 27, 2025), total segment operating income fell 9% year over year. The biggest problem was the entertainment segment, where operating income dropped 35% to $1.1 billion as programming, production, and marketing costs grew faster than revenue. The sports segment's operating income fell 23%, too, dinged by about $110 million from YouTube TV temporarily dropping Disney's networks in a carriage dispute.

Layer on the long-running decline of linear television and management's own caution about consumers (Disney says it is "mindful of the macroeconomic uncertainty consumers are facing today"), and investors had reasons to sour on the stock.

Streaming profits are finally showing up

But the fiscal second quarter (ended March 28, 2026) showed a company in better shape than the stock price suggests. Revenue increased 7% year over year to $25.2 billion, and total segment operating income grew 4%. Non-GAAP (adjusted) earnings per share rose 8% to $1.57.

Streaming was the standout. Disney's subscription streaming revenue grew 13% year over year, accelerating from 11% growth in fiscal Q1, with subscription fees up 16%. And the streaming business's operating income nearly doubled year over year, climbing from $310 million to $582 million. That works out to a streaming operating margin of about 11%, up from about 6% a year earlier.

The trend within the year matters as much as the comparison. Streaming operating income went from $450 million in the fiscal first quarter to $582 million in the second, and the margin stepped up alongside it.

And Disney's content engine is helping. Zootopia 2 generated $1.9 billion at the global box office, and the franchise has since surpassed 1 billion hours streamed on Disney+. Hits like that can feed the company's parks and merchandise businesses for years to come.

The parks themselves are holding up as well. Experiences revenue rose 7% in the fiscal second quarter, and the segment's operating income grew 5%. Management called current demand at its domestic parks healthy, and it expects attendance to improve in fiscal Q3 after a 1% dip in the March quarter tied partly to soft international visitation.

Put it together, and management expects fiscal 2026 adjusted earnings per share to grow about 12%, excluding the benefit of an extra week in the fiscal year. The company is also targeting at least $8 billion in share repurchases in fiscal 2026.

Yet the stock trades at about 13 times forward earnings. That's about two-thirds of what investors are paying for Netflix's forward earnings -- for the streaming business that's accelerating, not the one that's slowing down.

Of course, Disney's cheaper multiple partly reflects its baggage. The decline of linear TV remains a headwind, and those networks still generate profits that streaming must replace. A weakening consumer could hit the parks, which remain Disney's biggest source of operating income. And film slates are hit-driven, so the box office may disappoint in any given quarter.

With that said, the market seems to be pricing Disney as if its streaming turnaround isn't happening, even as the numbers show that turnaround gaining speed. To me, that makes Disney the more interesting streaming stock today -- a profitable, diversified entertainment company at 13 times forward earnings, backed by guided double-digit earnings growth and a large buyback program.

In short, I think the pessimism has overshot, and Disney looks like a contrarian buy here. Though I'd start with a modest position. With all of this said, we'll find out more soon; Disney's fiscal third-quarter report is due in early August.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.