Disney’s Theme Park Attendance Slows, But Company Presses On With Massive Expansion Plans
Despite declining attendance at its theme parks, Disney remains committed to its ambitious expansion plans, investing a staggering $60 billion over the next ten years to enhance its experiences business. This strategy, while counterintuitive given current market conditions, is driven by Disney’s confidence in the long-term appeal of its parks and cruises, coupled with a resurgence in its entertainment business, including streaming and theatrical releases.
Key Takeaways:
- Disney’s theme park attendance is slowing down. Domestic parks in Florida and California are experiencing softening demand as consumers grapple with inflation and cut back on discretionary spending.
- Despite the slowdown, Disney is doubling down on its parks and cruises. The company plans to invest $60 billion over the next decade to build new attractions, expand existing parks, and add ships to its cruise fleet.
- Disney’s entertainment business is experiencing a resurgence. The company has seen successful box office returns with recent releases like "Inside Out 2," "Deadpool & Wolverine," and "Alien: Romulus," and anticipates further success with upcoming films like "Mufasa: The Lion King" and "Moana 2."
- Disney’s streaming services are becoming profitable. Disney+ and Hulu are now profitable, driven by price increases and a crackdown on password sharing.
Theme Park Attendance Slowdown: A Short-Term Bump in the Road?
Disney’s experiences segment, which includes theme parks, resorts, cruises, and hotels, saw a significant slowdown in growth, with operating income dropping 3% year-over-year in the third quarter of fiscal 2024. This represents a stark contrast to the robust growth observed in the first two quarters of the year, when operating income increased by 8% and 12%, respectively.
The company anticipates further decline in operating income for this segment in the fourth quarter, driven by continued softness in consumer spending, particularly among lower-income households. This trend is not unique to Disney. Competitor Comcast, the parent company of CNBC, also reported a year-over-year decline in theme park revenue and profitability in the second quarter of 2024, citing lower attendance at its domestic parks.
However, analysts believe that this slowdown is likely a temporary blip. As the economy normalizes and Disney introduces new attractions, theme park attendance is expected to rebound.
Navigating the Challenges: New Competition and Inflation
While the economic slowdown is a factor, analysts believe that increased competition from Comcast Universal’s newly announced Epic Universe theme park, scheduled to open in 2025, is also contributing to the slowdown. This new park, boasting five themed worlds across 750 acres, is poised to attract a significant share of leisure spending in the Orlando market.
Analysts like Brandon Nispel of KeyBanc Capital Markets argue that this competition could lead to a more protracted "lull period" for Disney, potentially impacting attendance until the opening of new attractions in 2027, like the Tropical Americas expansion in Animal Kingdom.
However, Disney is well aware of the challenges and has taken steps to address them. The company is not only focused on expanding its parks but also leveraging its entertainment assets to drive interest in its experiences business. This includes promoting upcoming films and creating new attractions based on popular franchises like "Cars" and Disney’s iconic villains.
The Long Game: Disney’s $60 Billion Investment and the "Flywheel" Effect
Disney’s massive investment in its experiences business is a long-term strategy designed to ensure continued growth and profitability. The company’s focus on innovation and expansion is expected to pay dividends in the coming years, with analysts projecting that operating income for the experiences segment will achieve a compound annual growth rate (CAGR) in the high single digits between fiscal 2024 and 2030.
This strategy is guided by Disney’s commitment to its "flywheel" effect – the idea that success in one area of the business, such as theatrical releases, will translate into broader success across other areas, including theme parks, streaming services, and merchandise.
As Disney continues to release successful films like "Inside Out 2" and "Deadpool & Wolverine," the company expects to see a corresponding increase in interest in its theme parks, streaming services, and merchandise, ultimately driving continued growth and profitability.
A Strong Entertainment Business: Fueling the Growth
While the theme park business faces headwinds, Disney’s entertainment business is thriving. The company has seen a resurgence in its theatrical releases, with recent films like "Inside Out 2," "Deadpool & Wolverine," and "Alien: Romulus" exceeding box office expectations. This success is expected to continue with upcoming releases like "Mufasa: The Lion King" and "Moana 2."
Beyond theatrical releases, Disney’s streaming services are also making strides. Disney+ and Hulu are now profitable, driven by price increases and a successful crackdown on password sharing. These services are expected to continue generating stronger profits in the future, further bolstering Disney’s financial performance.
The success of Disney’s entertainment business serves as a key driver for its experiences business, fueling the "flywheel" effect and inspiring further investment in its parks and cruises.
A Cautious Approach: Patience and Long-Term Vision
While Disney’s long-term prospects remain strong, investors are advised to exercise patience as the company navigates the current challenges, including the slowdown in theme park attendance and increased competition. The company’s massive investment in its experiences business is a long-term play, and the full benefits of these investments will not be realized immediately.
However, Disney’s commitment to innovation and expansion, coupled with the resurgence of its entertainment business, suggests that the company is well-positioned for continued growth and success in the years to come.
