Disney's cash machine just roared to life

Disney’s last quarter may have delivered old-school magic, but this quarter just did it one better — delivering a boatload of cold, hard cash.

Free cash flow at the House of Mouse surged 53% to top $1.89 billion on the back of booming sales in Disney’s all-important Experiences segment (parks, etc.) and deferred taxes related to the California wildfire crisis. Lower content spending helped lift Disney’s streaming profitability, too, further strengthening the bottom line.

Gains on the top line were more muted, but still positive. Revenue for the fiscal third quarter rose 2% from a year ago to $23.7 billion, while income before taxes grew 4% to $3.21 billion. Adjusted earnings per share came in at $1.61, up 16%, beating last year’s $1.39. On a GAAP basis, EPS more than doubled to $2.92, inflated by a $3.3 billion non-cash tax benefit tied to a change in Hulu’s U.S. tax classification.

A case study in how Disney turns IP into cash

Readers who don’t have young children (or know any nostalgic Gen Zers) may be surprised to hear the "Lilo & Stitch" live-action film grossed $1 billion-plus with its release this quarter, becoming the fourth Disney film to cross the billion-dollar mark in the last year. The franchise is a good case study in Disney’s model, which turns IP into dollars across its business lines.

“Lilo & Stitch's success has fueled viewership of the original 2002 animated film and related content on Disney+, with more than 640 million hours streamed globally, and a sequel to the live-action film is already in development,” Disney management said in its prepared commentary. “Meanwhile, Lilo & Stitch is on track to become the company's second-largest licensed merchandise franchise this year behind only Mickey Mouse, with more than 70% revenue growth compared to last year. Stitch has also been deployed across our parks and experiences worldwide as we leverage the popularity of this global phenomenon.”

Sports segment scores, too

Disney’s sports arm is in dealmaking overdrive ahead of ESPN’s August 21 direct-to-consumer launch. The company struck a five year, $1.6 billion agreement with WWE parent TKO Group for exclusive U.S. streaming rights to marquee events like WrestleMania and SummerSlam, starting in 2026, at $325 million a year — more than triple the value of WWE’s current Peacock deal, per Wall Street Journal reporting.

The events will stream on ESPN’s new $29.99 a month service, with select coverage simulcast on cable. The pact builds on ESPN’s existing UFC relationship and comes alongside a sweeping agreement with the NFL that will give the league a 10% stake in ESPN in exchange for media assets including NFL Network, expanded highlight rights, and RedZone distribution.

Both deals are designed to fortify ESPN’s streaming future and position its DTC service as a must-have for sports fans.

Outlook for the full year

Looking ahead, Disney forecast adjusted EPS of $5.85 for fiscal 2025, up 18% year over year, and said Disney+ and Hulu subscribers should grow by more than 10 million in the current quarter, mostly from Hulu’s expanded distribution through Charter.

CEO Bob Iger pointed to the launch of a standalone ESPN streaming service, deeper NFL ties, and the integration of Hulu into Disney+ as key growth drivers. With cash generation surging, IP machines firing, and sports rights locked in for the streaming era, the company is signaling it intends to spend the rest of the year on offense.

Still, shares sank 1.5% premarket, even as the broader market edged into the green. Maybe that's to do with the muted top line growth, or perhaps because Disney's full-year strength was already baked into shares. But whatever Wall Street's short-term reaction, Disney's top brass is clearly feeling confident.