The S&P 500 index generated a total return of 18% in 2025, marking its third straight year of double-digit gains. But investors are now focused on 2026. And The Motley Fool has provided a detailed list of potential investment opportunities to consider. But there's one entertainment conglomerate on the list that deserves a closer look, particularly as it navigates ongoing changes to the industry.
Could this media giant's stock surge 100% on the growth of its direct-to-consumer (DTC) streaming segment? Here's what investors need to know.
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This business has quickly become a streaming powerhouse
Walt Disney (DIS 0.33%) was late to enter the streaming wars. Perhaps management's hesitation stemmed from the fact that it had (and still owns) highly profitable cable-TV networks. But the world's been moving to streaming entertainment. Cable TV is only in half of U.S. households nowadays, as the cord-cutting trend continues.
Disney' flagship platform, called Disney+, was launched in November 2019. And now, it has 131.6 million subscribers. The business also has Hulu, which counts 59.7 million subscribers (excluding the live-TV option). These two services are included in the company's direct-to-consumer (DTC) segment results.
It's diffcult to overstate how important it is that Disney's DTC segment is now fully profitable, with its bottom line improving drastically. Operating income here jumped from $143 million in fiscal 2024 to $1.3 billion in fiscal 2025 (ended Sept. 27). And management expects a 10% operating margin in fiscal 2026, implying a huge profit gain.
It's critical for companies that operate in the streaming industry to achieve scale. That's because there are huge costs related to investments in content. Netflix has been profitable for some time. And it forecasted a remarkable 29% operating margin in 2025.
In a best-case scenario, let's believe that Disney's DTC segment reports the same operating margin in fiscal 2030 as Netflix will report for 2025. This translates to operating income of $10 billion, assuming DTC revenue grows at an 8% annualized pace over this time period (same growth rate as fiscal 2025). In comparison, the entire Disney business generated $17.6 billion in operating income in fiscal 2025. Should the company's streaming platforms support meaningfully higher profits down the road, it can undoubtedly help drive the stock up as well.
Of course, the exact upside is impossible to quantify. However, the market will appreciate the fact that Disney will look like an innovative and forward-looking enterprise with growth potential, evolving from its cable TV past. And we have yet to mention ESPN, which finally made the switch fully to streaming last fall, by offering a direct-to-consumer ESPN service at $29.99 per month, or $35.99 per month when bundled with Hulu and Disney+. It includes the full suite of ESPN networks and services.
Don't forget about Disney's experiences segment
While the future of Disney will certainly depend more on streaming entertainment and not its linear networks, DTC content delivery isn't the only factor that will have an impact on stock performance. Investors can't forget about the experiences segment. This includes the company's theme parks, cruise lines, and consumer products.
From a financial perspective, this segment is Disney's most important, accounting for more than half of operating profits. It's arguably the most competitively advantaged, bringing unmatched intellectual property to life. Experiences also have high barriers to entry. There are immense capital requirements, as well as regulatory hurdles to tackle. And the experiences segment benefits from pricing power.
NYSE: DIS
Key Data Points
Shares are trading at a below-market valuation
It would be beneficial to shareholders if Disney's stock was cheaper. Shares currently trade at a forward price-to-earnings (P/E) ratio of 17.5. This seems like a compelling entry point for investors.
But it's smart not to bank on sizable valuation expansion supporting stock gains. Disney is one of the most widely recognized brands on Earth, but the company requires a lot of capital to run and grow. This should keep a cap on what its P/E multiple could ultimately be, even though earnings gains will be the main catalyst for shareholders.
I don't think it's out of the question that monster DTC streaming success can double Disney's stock price. It will likely take five or more years to get there.
