Walt Disney - The Flywheel, drawn in 1957

PM Capital has built a position in Walt Disney (NYSE: DIS), the owner of the deepest intellectual property (IP) library in entertainment. Our investment thesis centers around the irreplaceable nature of that library and the vast number of ways the company can monetise it.

The market still files Disney under media. The accounts say something different. Experiences, which covers theme parks, resorts, cruise ships and consumer products, contributed close to 60% of group EBIT on a trailing twelve-month basis. Disney operates eight of the ten most visited theme parks in the world, runs the largest consumer products licensing business globally, and earns returns on invested capital above 20% in this business.[1]

Today the company trades at 14 times forward earnings, the bottom of its twenty-year valuation range. The why is well rehearsed. COVID-19 closed the parks. The shift in content distribution from linear to streaming cut media EBIT roughly in half between 2021 and 2023, with direct-to-consumer losses peaking near $4 billion a year. Changes in leadership, from Bob Iger to Bob Chapek, then back to Bob Iger, led to several strategy resets which drove investor uncertainty. Layered on top was a period in which the company’s creative output became a proxy for a wider culture war.

None of this has impaired the library, and the library is the asset. To understand why, it helps to go back to a single sheet of paper.

The map of 1957

Walt and Roy Disney set up their studio in Los Angeles in 1923. Mickey Mouse appeared in Steamboat Willie in 1928. The company’s first licensing deal came in 1929 when the manufacturer of children’s writing tablets (writing books) offered Walt $300 for the right to print Mickey on the cover.[2]

That tablet taught the company the lesson it has run on ever since. A character that has already been paid for once can be paid for again, and each additional use makes the character more familiar rather than less valuable. Disneyland took this to another level when it opened in 1955.

It wasn’t until 1957 that the company put this strategy down on paper, in a diagram held in the Disney archives under the title ‘Walt Disney’s Theory of Value Creation in Entertainment’. It shows theatrical film at the centre, surrounded by music, publishing, comic strips, merchandise licensing, television and Disneyland, and the arrows connecting them pointed both ways. Merchandise did not simply take from the films, it kept the characters in circulation between them. Television did not just carry content; it sold tickets to the park.[3]

The boxes on the page have changed over time. Disneyland has become twelve parks across five countries, eight cruise ships and a licensing business spanning hundreds of products. Comic strips have become Disney+. Despite these changes, the broad concept has not changed at all.

Over the years Disney has expanded their library through acquisition and supercharged the value of the acquired IP using this model. Under Bob Iger, Disney spent around $85 billion acquiring intellectual property that would fit the model: Pixar for $7.5 billion in 2006, Marvel for roughly $4 billion in 2009, Lucasfilm for $4.05 billion in 2012 and 21st Century Fox for $69.5 billion in 2019.[4]

The value of IP in an abundance of content

The flywheel matters more today than it ever has, for reasons that have little to do with Disney. Streaming made distribution more accessible and the cost of producing watchable content is falling quickly too. The industry’s constraint used to be the ability to make and ship content. It is becoming the ability to attract and maintain the attention of consumers.

What stays scarce in an abundance of content is not content, it is attachment and this plays nicely to Disney’s strengths. Chief executive Josh D’Amaro outlined this, and how the flywheel works, in his first letter to shareholders in May this year.

“Our unique competitive strength is our ability to create characters, stories, and franchises that form enduring relationships with audiences around the world. What begins as a single creative investment can evolve into a multi-decade relationship. We engage with these audiences across streaming, theatrical, sports, consumer products, experiences, and games.”[5]

The release of Toy Story 5 this year provides a perfect illustration of economics that follow from attachment. The fifth instalment of the franchise made over $1.1 billion at the global box office.[6] What happened next matters more. Speaking at the Goldman Sachs Communacopia conference in September, chief financial officer Hugh Johnston said the film had driven Disney’s “highest growth rate in CP in 20 years”, CP being the consumer products business.[7] The same characters then earn again on the streaming service, again as an attraction at the theme park, and again on a cruise ship. Each of those uses carries a fraction of the creative risk of the first, and each one deepens the relationship that makes the next instalment work.

The market has recently put a price on IP libraries. Warner Bros. Discovery drew binding bids from Netflix, Paramount Skydance and Comcast, with Paramount winning in February at $31 a share, around $110 billion including debt, for a catalogue most people would place a clear step below that of Disney’s. Disney’s market capitalisation is roughly $188 billion today. Its Enterprise Value is roughly $228 billion.

According to License Global’s annual rankings, retail sales of licensed Disney product reached $63 billion in 2025, close to double the next largest owner. Disney has been the world’s largest licensor every year since the ranking began in 1998.[8]

Where Disney earns

Five buckets make up Disney’s earnings. Within Disney Experiences, parks, resorts and cruises generated $8.5 billion of operating income on a trailing twelve-month basis to June 2026, while consumer products generated $2.4 billion. At Disney Entertainment, streaming which is predominately Disney+ and Hulu, generated $2.1 billion, while the remaining businesses within the division, linear, theatrical and licensing generated $2.7 billion. Last but not least, ESPN generated $2.6 billion over that twelve-month period.

Experiences is the largest contributor and, in our view, the best business in the group. The common reading is that parks earnings are near a peak and that pricing has been pushed about as far as it can go. We take a different view, and the reason has more to do with capital allocation than with the parks themselves.

Streaming losses incurred between 2019-2023 were not merely a drag on reported earnings, they were a claim on capital. Money that could have gone into attractions, hotel rooms and ships was instead funding a direct-to-consumer business which at its worst lost over $4 billion in a single year. That constraint has now gone. The streaming business achieved a 13% operating margin in the June quarter and management expects double-digit margins for the full year, which frees the balance sheet to do what it should have been doing all along. Disney is committing $60 billion to Experiences over ten years. Reinvestment is already visible in the numbers, domestic attendance grew 3% in the most recent quarter while cruise demand continues to outstrip supply despite roughly 50% more guestrooms added over two years.[9]

That also reframes the argument about per capita spending. Ticket price inflation has run well below headline per capita growth, most of which comes from mix, Lightning Lane, VIP tours, better restaurants, bought by guests who choose to buy them. Capacity is the enabler, and more rides and rooms mean both more visitors and more to sell them. That makes this a volume story rather than a pricing story, which is precisely what the multiple needs.

Streaming should still deliver the largest absolute change in operating income. Direct-to-consumer earns $2.1 billion today against consensus estimates of $4.5 to $5 billion by 2028[10]. This compares to Netflix which is forecast to earn $13.3 billion this year. Getting there needs growth in international subscribers, price and the advertising tier carrying more of the revenue mix.

What would break it

The market often cites the decline of linear as a major headwind, however we don’t see this as the risk, it is understood and largely in the price. The terminal risks are three. The library loses relevance, which no balance sheet protects against and only creative output answers. Entertainment share is lost to cheap AI-generated and creator content. The third risk is broader, that being weakness of the American consumer where Disney does most of its business becomes great enough to show up in park attendance, though we would note that historically parks have been extremely resilient and have been running ahead of expectations in recent periods.

Valuation

Our involvement with Disney did not begin this year. We first took a position in 2023, with the stock in the $80 to $85 range. Over the past three years our position has been primarily expressed through sold put options rather than through holding of the underlying stock. Selling puts has allowed us to be paid on a stock which we viewed to be inherently cheap but lacking obvious near-term catalysts as the management transitioned its business from linear to streaming. The business has broadly traded flat over the past decade.[11]

Past performance is not a reliable indicator of future performance. 2026 FactSet.

For Disney there is no single catalyst to close the gap, which is rather the point. What is required is execution. The capital investment in parks and cruises converting into attendance and per capita growth in the Experiences division, content investment driving growth in streaming and excess capital being used to repurchase undervalued stock. We see a business that can redeploy capital at healthy returns and grow earnings in the medium term at high single digit to low double digits.

During 2026 our position has evolved to one where we now have a material position in the underlying stock while further complementing this with options. We see the payoff from the above actions as much more tangible today.

Disney trades at close to $100 a share, or about 13-14 times FY27 earnings.[12] In our view, this valuation does not adequately reflect the strength of Disney’s businesses and their earnings potential. We see a clear case for a higher valuation multiple, with earnings growth providing an additional driver of value.