Disney’s streaming business is profitable. Has direct-to-consumer hit a turning point?

It took billions of dollars in losses, a company-wide overhaul, cost-cutting and price hikes to get there, but Bob Iger and Walt Disney Co. appear to have reached a long-awaited turning point in the streaming business.

Disney direct-to-consumer operations — a combination of Disney+, Hulu and ESPN+ — have been profitable two straight quarters, helping to drive earnings that topped Wall Street expectations.

The Burbank, California-based entertainment giant last week said its streaming trifecta produced fiscal fourth quarter operating income of $321 million, swinging from a $387 million loss reported at the same time a year ago. Full-year operating profit for the direct-to-consumer group came in at $134 million, compared with fiscal 2023’s $2.6-billion loss. Disney+ added 4.4 million subscribers to reach 120 million accounts globally in the fourth quarter.

It’s a far cry from just a few months ago, when Iger was the focus of a nasty proxy campaign from activist shareholder Nelson Peltz, the billionaire founder of the investment firm Trian Fund Management. One of Peltz’s demands was that Disney show a realistic plan to achieve Netflix-like profit margins from streaming.

Now, Disney and Iger are showing signs of renewed swagger. The stock is up 25% so far this year, though it still isn’t as high as it was in April, when Iger defeated Peltz in the hedge fund agitator’s quest to win a board seat.

Disney’s fourth quarter earnings were also buoyed by a strong showing from its resurgent film studios, which put out big hits with “Deadpool & Wolverine” and “Inside Out 2.”

In an unusual flex for Disney, the company on Thursday surprised analysts by giving earnings guidance for the next three years. Not just 2025 and 2026, but the following fiscal year as well.

The company is projecting a “double digit” increase in adjusted earnings per share in 2027, as Iger prepares to hand off the baton to a yet-to-be determined successor.

Notably, 2027 is after Iger is expected to exit as chief executive, so the fact that the company is giving his replacement a financial target, however vague, caught several observers’ attention.”We’re not sure the incoming CEO will appreciate having their hands tied in that way,” TD Cowen analyst Doug Creutz wrote in a note to clients.

Disney also must contend with issues that continue to weigh on all legacy media companies, including the volatility of the film business and especially the erosion of traditional TV networks. Fourth-quarter sales from Disney’s linear networks business fell 6% to $2.5 billion, while profits from the unit dropped 38% to $498 million. Revenue at ESPN, reporting under the separate “sports” segment, was up 1% with profit falling 6%.

The company’s parks business, long a huge driver of results, faces an uncertain macroeconomic environment with a new incoming administration, as well as competition from the upcoming Epic Universe park in Florida (which Disney has downplayed). In sports, the company still has to successfully launch its flagship ESPN streaming service next year.

So what’s giving Disney the self-assuredness to give out these targets? Disney executives, speaking on last week’s earnings call, cited several reasons to believe in the company’s forecasts, including steady improvement in the streaming business and considerable investment in experiences such as the parks and cruise lines.

With streaming in particular, Disney was remarkably specific in its guidance for 2026. For example, executives said that Disney+ and Hulu would achieve 10% operating margins by then, excluding the Hulu Live TV streaming offering.

Management highlighted changes and improvements the company is making to its services: anti-password sharing measures, better personalization and customization technology, adding an ESPN tile, etc. All this ought to allow Disney to improve engagement, increase subscriptions, reduce churn, please advertisers and raise prices.

“We wouldn’t have given you the guidance we did if we didn’t have confidence in delivering,” Disney Chief Financial Officer Hugh Johnston said on the call.

Disney’s results are just one sign of a broader rebound for streaming, at least among the top-tier companies. Netflix is making billions of dollars in profit, with a stock market valuation of $362 billion (significantly higher than Disney’s $206-billion market cap). Spotify, the Swedish music and podcast subscription service, recently projected it would reach full year profitability for the first time.

With Disney, there are always risks to point to. The studio, which is having a strong year, has a number of high-stakes bets coming up next year, including multiple Marvel movies (“Captain America: Brave New World,” “Thunderbolts,” “The Fantastic Four: First Steps”) a live action “Snow White” and a nonsequel Pixar film, “Elio.”

But none of that will take up as much investor attention as the ongoing succession process for Iger, which is being led by James P. Gorman, the outgoing executive chairman of Morgan Stanley, who will become chairman of Disney’s board of directors next year.

Disney recently said it would choose a successor in early 2026, which is later than many expected. The Wall Street Journal reported that the search for a replacement had widened beyond the oft-discussed quartet of internal candidates to include outsiders such as the chief executive of video game giant Electronic Arts, Andrew Wilson. Whoever gets the job, the pressure will be high, with or without the company’s earnings projections hanging over them.