Unlike visitors to its popular theme parks, Walt Disney (DIS 0.83%) investors haven't had a magical time. Shares of the House of Mouse have fallen 18% in the past three years, as the market has been worried -- mostly about the decline of cable TV and what were sizable streaming losses.

But there are better days on the horizon. After it climbed 33% since mid-August last year (as of Jan. 30), I predict that this top media and entertainment conglomerate will see its stock price soar in 2025 and beyond. My belief stems from improving streaming results.

Setting the standard

I think it's important to first take a step back and realize what direction Disney's finances could be heading in. Luckily, there's a clear-cut leader in the streaming industry to pay attention to: Netflix.

With 302 million subscribers, Netflix dominates the market. But what's notable is how its profitability has trended. The business reported a stellar 27% operating margin in 2024. That was up from 7% 10 years ago in 2024. Scaling up the revenue base, while keeping content, marketing, and technology costs under control, has been a winning recipe.

Disney's advantage

Can Disney follow what Netflix did? There are reasons to be optimistic.

For starters, the company's direct-to-consumer (DTC) streaming segment has turned the corner financially. It has reported two straight quarters of positive operating income. Management expects the division to post a 10% operating margin in fiscal 2026 (excluding Hulu Live TV and ESPN streaming results). Looking at Netflix's profitability, Disney likely has much greater upside with this metric over time.

Given that DTC in total counts hundreds of millions of subscribers and generated $22.8 billion in fiscal 2024 revenue, it certainly has meaningful scale. The leadership team's focus on cost cuts and prioritizing quality over quantity with content spend is encouraging, too.

Disney also has a major advantage, and that is the ability to bundle services. The traditional cable-TV industry is in secular decline, to be sure, but it's hard to deny that the bundling strategy provides tremendous value as we look to the future.

Disney is best positioned to offer its own bundle in the streaming age with Disney+ (family entertainment), Hulu (general entertainment), and ESPN+ (sports). Indeed, management's pricing strategy reflects pushing customers in this direction, with the ad-supported trio bundle costing only $1 more per month than the stand-alone ad-free Disney+ option. The business has also added Hulu and ESPN tiles to the Disney+ service to facilitate a more unified experience.

Customers can tackle the entertainment needs for the entire household with one subscription. Disney gains by being able to maximize revenue, increase engagement, and reduce churn. That seems like a winning combination that no other competitor can match.

And while Netflix is relatively new to the advertising game, Disney has built up expertise in this regard for a very long time. Having competency here creates the ability for better monetization of viewers and their attention.

Maintain perspective

To be clear, I believe Disney is a compelling investment opportunity right now. The potential for DTC operating income to increase meaningfully is one key reason why.

The valuation is another convincing argument. Shares currently trade at a forward price-to-earnings ratio of 20.9. That's below the S&P 500's multiple. The slight discount for what is a world-class company is hard to pass up.

While Disney has clear upside for investors, it's not a foregone conclusion that the stock price will soar in 2025. In order for this favorable outcome to become a reality, market sentiment must also improve dramatically. This is totally unpredictable, and it can change at any moment for whatever reason.

At the end of the day, investors must ask if they think Disney stock looks like a smart investment with a three- to five-year time horizon. In my opinion, it does. Hopefully its performance in 2025 will provide an early indication that my view is correct.