I’d still buy Disney stock despite its disappointing fiscal quarter. Here’s why.

There’s no denying that The Walt Disney Company (DIS 0.29%) wrong last quarter. While the evolution of its streaming business to its first operating profit is an exciting milestone, its theme parks face an uphill battle with inflation — its own, as well as rising prices that are constraining consumer spending. Disney shares fell more than 4 percent Thursday after the company’s fiscal third-quarter results were released that morning.

I still maintain that Walt Disney is a name worth buying, even more so after Wednesday’s weakness sent the stock to a multi-month low. The market is overlooking a handful of details here, some of which appear nowhere in the reported numbers.

Fiscal Q3 is a mixed bag

All in all, it wasn’t a terrible quarter. Revenue rose from $22.3 billion to nearly $23.2 billion in the three-month period ended in June, just beating estimates of $23.08 billion. Non-GAAP earnings per share improved from $1.03 to $1.39 now, versus expectations of $1.20.

The biggest highlight of the quarter was the company’s streaming arm turning an operating profit. Disney+, Hulu and ESPN+ together turned nearly $6.4 billion in revenue into $47 million in operating income. It’s not much, but the results of this business are on the right track – and sustainable.

Data source: The Walt Disney Company. Chart by author. The numbers are in the billions.

Disney anticipates an even bigger result for its streaming arm for the ongoing quarter.

At the other end of the spectrum, Disney theme parks are facing headwinds. Parks and experiences revenue rose just 2% last quarter, while operating income fell 3% year-over-year due to “higher inflation-driven costs, increased technology spending and new offers for guests”. Disney also believes that “the moderation in demand that we saw in our domestic businesses in Q3 could impact the next few quarters.”

Investors have mostly (and understandably) chosen to see the glass as half empty, not half full.

If you look at the big picture, however, you’ll likely see that there is far more work going on in favor of the Walt Disney Company right now than there is work going against it.

The Walt Disney Company is setting the stage for growth

Don’t misread the message. Disney CEO Bob Iger still has a lot to figure out in his second stint at the helm. However, he has already set a large part of the table, so to speak.

Take streaming as an example. He successfully led a reduction in the operating costs of this arm without undermining its ability to drive and grow the business. Last quarter’s streaming revenue also broke a record. Now that the company has proven that this arm is at least capable of operating in the black, Iger can justify making more investments in its growth.

And yes, full control of the Hulu streaming service is one of those potential investments. As it stands now Comcast still owns a third of Hulu’s platform, enough to prevent Disney from fully leveraging its reach. The Walt Disney Company has the right to buy this remaining stock from Comcast, and while it won’t come cheap (a possible price tag of more than $13 billion), owning it outright will give Disney enormous leverage, not one, but two well…well-known and well-used streaming platforms.

There is also hope for the struggling media company’s film arm.

As the owner of both Star Wars and Marvel’s intellectual property, Disney dominated the box office between 2006 and 2019. Things haven’t been the same since pre-COVID 2019, when Avengers: Endgame ended up being the company’s last mega-hit. Iger even admitted last year that the company’s film arm had “lost some of its focus,” resulting in some underwhelming films.

But there is hope. Inside Out 2 has grossed more than $600 million since its launch in mid-June, according to data from The Numbers. And while it wasn’t released until after the third fiscal quarter ended, Deadpool and Wolverine has already generated nearly $1 billion in worldwide ticket sales since its debut late last month.

Disney seems to be getting at least some of its movie mojo back, and more likely hits are in the pipeline. A feature film about Star Wars “The Mandalorian” character and the sequels Ice cream 3 and Toy Story 5 are slated for release in 2026, while the next Captain America film and a live-action remake of snow white are anticipated for next year.

Look for at least some of the weaknesses in Disney’s cable arm to be compensated for in the near future as well. While it’s unlikely to supplant or supplant the media company’s linear TV arm as a profit center, next year’s launch of a standalone streaming version of ESPN is the product many cord-cutters and cable-cutters never waited for . Meanwhile, Disney has already set a price for a streaming package that includes the Fox package, The discovery of Warner Brosand ESPN sports content in one service. It won’t be a game-changer either, but it should at least ease some of the headwinds that cut 7% of its linear TV (cable) business last quarter.

Also acknowledge that while the company’s Experience arm — theme parks and hotels — is hitting a wall, the company closed its Star Wars-themed hotel last September. It’s only one location, but at over $1,000 per person per night, that’s a lot of revenue that’s not being generated anymore.

Meanwhile, while theme park prices and related costs have risen beyond the reach of most people, this is a headache largely limited to Disney theme parks and related hotels. Its more affordable vacation options, such as cruises, hold up with decent pricing power. In fact, two new cruise ships will soon be added to its fleet. In this sense, both Carnival and Norwegian Cruise Lines reports more demand for leisure cruises than either company can currently handle.

Opportunity knocks

Problem? None of this qualitative information is evident in the quantitative disclosures that investors typically use to make buy/sell decisions. Most of the above are also forward-looking rather than backward-looking, making buying Disney stock an even bigger leap of faith.

However, companies are always more than just numbers. Ditto for their stocks. Stocks also (possibly) reflect a company’s future prospects rather than its past performance.

This is a particularly relevant idea for anyone looking at The Walt Disney Company right now. The company isn’t exactly firing on all cylinders here, but it seems to be setting the stage for a rekindling of its glory days as an entertainment powerhouse. It was just a bit of a pain to prepare for this reinvention.

Whatever the reason, I’d use this stock’s 30% pullback from its April peak as an opportunity to get in before everyone else starts connecting the dots.