Bob Iger Just Delivered Fantastic News for Disney Investors

Walt Disney (NYSE: DIS) just reported its financial results for the first quarter of fiscal 2025 (ended Dec. 28). Revenue totaled $24.7 billion (up 5% year over year), while diluted earnings per share came in at $1.40 (up 35%). Both of these headline figures exceeded Wall Street analyst expectations.

However, the top- and bottom-line beats can easily mask a positive trend happening within this media and entertainment juggernaut. In fact, CEO Bob Iger just delivered fantastic news for Disney shareholders. Here's what you need to know.

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Ready for the future

During Q1 2025, Disney's direct-to-consumer (DTC) streaming operations within its entertainment segment, which includes Disney+ and Hulu, reported operating income of $293 million. This was a big improvement from the $138 million operating loss posted in the year-ago period. It has now been three straight quarters that Disney has been in the black in this budding segment.

Revenue here jumped 9%, driven mainly by favorable pricing that led to higher average revenue per user (ARPU). However, Disney+ saw the subscriber base shrink by 1% in the quarter, with the expectation that Q2 will see another drop likely because of price hikes.

As we look ahead, management expects entertainment DTC to generate $1 billion in operating income for all of fiscal 2025. And in fiscal 2026, the leadership team believes a 10% operating margin can be achieved. That's a major reversal from the time the division registered a worrying $4 billion operating loss just two years ago in fiscal 2022.

Disney's stock price has been under immense pressure in recent years precisely because it was hemorrhaging money trying to scale up its streaming platform since Disney+'s launch in November 2019. But now it looks like the company has turned this financial corner.

Look at what's possible

What was once a drag on the financials is now turning into a tailwind, showing that Disney's strategy is working. Executives are focused on making huge cost cuts, with content spending being one area of prioritization. Iger has previously discussed emphasizing quality over quantity. After reducing the budget by $1 billion, the business plans to spend $23 billion on content in fiscal 2025, slightly less than last year.

Netflix provides a clear example of the potential of Disney's DTC segment. The streaming pioneer is forecasting a 29% operating margin in 2025. It's correct to assume Disney probably won't get to that stellar level because the House of Mouse has to pay for expensive sports rights and big-budget films.

However, I don't think it's unreasonable for Disney's DTC division to get to a 20% margin in the next few years. Of course, it all depends on the company's ability to gain new subscribers and drive up ARPU.

Here's where Disney has an advantage. With the planned launch of the ESPN flagship streaming app this fall, this business can offer a bundle containing Disney+, Hulu, and ESPN that can cater to every single person in a household, from children and family entertainment to premium TV series to NBA and NFL games.

This bundled offering would likely have pricing power, with strong engagement and low churn. It could be a staple in hundreds of millions of households worldwide. On the Q1 2025 earnings call, Bob Iger called streaming the "future of the television business." He's positioning the company to benefit.

As it has been in past decades, Disney is poised to be a major winner in the current phase of the media industry. The company's DTC streaming segment is on its way to generating growing profits in the years ahead. That positive trend could drastically reduce the uncertainty investors have about the business, potentially providing a powerful catalyst for the stock to march higher.

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Neil Patel and his clients have positions in Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.