With Disney's (DIS) - Get Reportfiscal fourth-quarter results on Thursday after the close, investors focused on the media giant's "Direct-to-Consumer (DTC) & International" segment, which includes Disney+, ESPN+, and Hulu. Unsurprisingly, the company's significant investments to ramp up its online streaming video business had a negative impact on its margins. The 21st Century Fox (21CF) acquisition in March boosted revenue by 34% year over year, but cash flow decreased to $1.7 billion, down 55% year over year.

With this context, Disney's legacy businesses, grouped under three segments, remain key since each of these segments generated more than $1 billion of operating income over the last three months. These activities will fund the growth of the company's online streaming services over the next several years. Also, these segments provide content and cross-selling opportunities with its DTC offering. And after a challenging previous quarter, the improving performance of Disney's legacy activities during this quarter should relieve investors. 

A Small-Than-Expected Decline in Media Networks

In terms of operating income, the "Media Networks" segment, which includes the company's cable and broadcast businesses, is Disney's most important segment. Fiscal fourth-quarter revenue increased to $6.5 billion, up 22% year over year thanks to the contribution from the 21CF acquisition. And the 3% drop in operating income to $1.8 billion came in better than the 10% forecast.

ESPN dragged down the "Media Networks" segment's operating income, partly because of the decrease in its number of subscribers. In contrast, the online streaming service ESPN+ grew its paid subscribers from 2.4 million at the end of the fiscal third quarter to over 3.5 million at the end of this quarter.

With the "Media Networks" segment's secular decline because of the cord-cutting momentum, the lower-than-expected decline is a positive outcome of this quarter.

Visitors Go Back to the Parks, and They Spend More

During the previous quarter, the 3% drop in attendance at Disney's domestic parks worried investors, but the last results indicate the number of visitors stabilized. Since customers kept on increasing their spending at the company's parks, revenue from the "Parks, Experiences and Products" segment increased to $6.7 billion, up 8% year over year. And thanks to strong merchandising, operating income reached $1.4 billion, up 17% year over year. Also, management expects revenue to grow during the next quarter thanks to the contribution of Star Wars Galaxy's Edge at Walt Disney World. 

Despite the recent improvements, investors should remain prudent with Disney's "Parks, Experiences and Products" results. Management believes some customers are deferring their visits to Disney Land and Walt Disney World until the complete opening of Galaxy's Edge. But even with encouraging signs such as the increase in booked rates at the company's hotels, the increase in the number of visitors has yet to materialize. Besides, expenses associated with Galaxy's Edge and higher wages will pressure operating margins.

Successful Movies

After its challenging fiscal third quarter due to disappointing results from its 21CF acquisition, the company's "Studio Entertainment" segment improved during this quarter. Revenue increased to $3.3 billion, up 52% year over year. The Lion King, Toy Story 4, and Aladdin contributed to the strong results, but the underwhelming performance of some 21CF releases such as Ad Astra, Art of Racing In The Rain, and Dark Phoenix penalized again the segment. And management expects an operating loss of about $60 million from the 21CF film studio during next quarter.

Leaving aside its $1.1 billion of operating profit, the success of the "Studio Entertainment" segment constitutes an important factor in the DTC business considering the theatrical releases will also feed the company's streaming platforms. Thus, investors should watch the performance of the 21CF business over the next several quarters to make sure the current challenges of the acquired film studio remain temporary.  

No Margin of Safety

Since management doesn't expect the company's streaming services to become profitable before 2023 and 2024, the performance of the legacy businesses remains key, and investors welcomed the better-than-expected fiscal fourth-quarter results. But the stock price, now close to $140, doesn't provide any margin of safety. The company's market capitalization reached $252 billion and the forward P/E ratio exceeds 20. 

Even with the encouraging recent results, prudent investors should stay on the sidelines given the valuation, the declining margins and the uncertainties around the launch of Disney+.

Disney is a holding in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells DIS? Learn more now.

The author doesn't own any of the stocks discussed.