Disney is investing $60 billion over the next 10 years to enhance its experiences business, which includes its theme parks and cruises. Despite a recent slowdown in park attendance, Disney is committed to keeping its experiences fresh and exciting, with plans for a new section at Magic Kingdom focused on villains and additional cruise ships. While the weakening park attendance has put pressure on the stock, investors at the Club are staying patient and view Disney’s stock as attractive due to the company’s investments to improve its parks and ships, ensuring long-term profitability.
Disney’s experiences unit generated 67.5% of the company’s operating income in fiscal 2022 and 2023, but recent softness in domestic parks has caused concern. The company expects flat attendance over the next few quarters, adding to the pressure on the stock. However, the Club remains optimistic about Disney’s long-term prospects, especially with the ongoing comeback in its entertainment unit, which includes streaming operations and theatrical releases. Recent announcements at the D23 fan event, such as new attractions at Magic Kingdom and additional cruise ships, are expected to generate strong returns in the long run.
In the short run, Disney’s experiences segment saw a 3% drop in operating income in the fiscal third quarter, below expectations. Consumer caution due to inflation and stubborn economic conditions has led to softer vacationer activity, impacting theme park attendance. Competitor Comcast also experienced a decline in theme park revenue and profitability. Analysts anticipate a negative outlook for Disney’s domestic attendance in the next few years, partly due to competition from Comcast’s new theme park opening next year.
Despite the short-term challenges, Disney is making significant capital investments to accelerate growth in its experiences business. CEO Bob Iger has emphasized the importance of these investments in driving future profitability. Analysts project a temporary drop in operating income and attendance but expect a compound annual growth rate in the high single digits between fiscal 2024 and 2030. Once the $60 billion investment plan is completed, Disney could potentially double its experiences operating income over the next decade, attracting investors with a buy rating and price target upside.
While Disney navigates through the challenges in its theme park business, its entertainment unit is showing promise with profitable streaming services and successful theatrical releases. Recent box office hits such as “Inside Out 2” and “Deadpool & Wolverine” have contributed to the unit’s operating income growth. Disney’s flywheel effect, where excitement around movies translates into interest across various segments, is evident in the resurgence of its entertainment business. As the company continues to invest in new releases and streaming platforms, profitability is expected to improve, offsetting the challenges in the theme park segment.
In conclusion, Disney’s strategic investments in enhancing its experiences business and expanding its entertainment offerings are positioning the company for long-term success. While short-term challenges in theme park attendance remain, the ongoing improvements in the entertainment unit and the potential for future returns from the investments are reasons for optimism among investors at the Club. Disney’s commitment to innovation and growth, coupled with a strong brand and appealing attractions, are expected to drive profitability and shareholder value in the years to come.
