How Is U.S. Theme Park Attendance Trending For Disney?

While Disney’s (NYSE:DIS) U.S. theme parks and resorts account for close to 25% of its revenues, they contribute just around 10-15% to its stock value. The low value contribution can be attributed to lower EBITDA (earnings before interest, taxes, depreciation and amortization) margins and high capital expenditures associated with this business. The annual attendance at Disney’s theme parks in the U.S. has grown at a slow pace for the last few years, amounting to an estimated 72 million in 2012. This growth was driven by the improving U.S. economy and Disney’s investment in new attractions within its resorts. We expect the growth to continue and forecast Disney’s U.S. theme park attendance to reach close to 77 million by the end of our forecast period.

It must be noted that given the relatively small value contribution of this business, there is not a significant room for upside/downside based on any deviations from our forecast for Disney’s U.S. theme park attendance.

Here are some of the factors that will govern the growth.

See our complete analysis for Disney

Historic Growth Has Been Slow

Disney’s theme park attendance in the U.S. has increased at an average annual rate of less than 1.5% for the past five years. Total number of annual visitors increased from 67 million in 2007 to an estimated 72 million in 2012. While the improving economy has positively impacted the number of theme park visitors, the growth rate has remained low as the U.S. theme park market seems to be maturing. Most of the growth in the future is likely to come from international markets. Going forward, we forecast Disney’s U.S. theme park attendance to increase at an average annual rate of around 1%. While there exists certain factors that favor growth, other aspects such as saturating market and increasing number of entertainment options will keep growth limited.

Growth In Population, Improving Economy & Disney’s Investments

The population growth will definitely be one of the factors driving higher number of visitors at Disney’s theme parks. However, the U.S. population growth rate has slowed down in recent years. ^[1] The figure amounted to just 0.73% for 2012, and overall the country’s population seems to be growing at a rate notably under 1%. In addition to the growth in the population, an improvement in the U.S. economy will also drive higher attendance at Disney’s theme parks.

Theme parks are considered as a destination for leisure activity and therefore the attendance is somewhat tied to the state of the economy and travel & tourism. Consumers are more likely to travel when economy is in a better state and discretionary spending is more viable. Even though the U.S. economic recovery has remained sluggish, the improvement is still there and that bodes well for the company. However, based on our historical estimates, we note that although the economic slowdown does put some pressure on the attendance, the impact is not very significant. This leads us to believe that the growth is likely to remain low even with the improving economy.

One of the important trends influencing the growth of theme parks industry is the concept of park-within-a-park. Disney and its competitors have been investing to create multiple themes inside their parks. In addition to this, Disney has also invested in technology upgrade and other services to improve visitor experience. Last year, Disney expanded and made some changes to its Magic Kingdom theme park in Florida that were aimed at reducing the wait time for customers and increasing overall sales. According to an estimate, Disney might have spent close to $300 million on this makeover. ((Disney World’s $300 Million Makeover Means No Waiting for Dumbo, Bloomberg, Dec  6 2012)) Such investments are necessary to drive attendance growth. They also provide Disney an opportunity to connect with consumers in a better way and cross-market other company products. Disney can promote movies, sell consumer goods, promote TV programming as well as online and other games through its theme parks.

Saturated Market & Growing Entertainment Options

Given that the U.S. theme park market has matured and plethora of entertainment options are available to consumers, Disney’s theme parks are likely to see slow growth in their attendance.

Why do we think that the market is maturing? The average growth rate for the number of annual visitors at Disney’s theme parks has remained quite low for the last five years (less than 1.5%).  In addition to this, some of the statistics from Theme Park Index 2011 report, suggest that while North America is maturing, most of the growth is likely to come from Asia. The attendance for top 20 parks in North America grew by only 2.9% in 2011, compared to 3.8% growth observed globally and 7.5% growth observed in Asia. Since Disney’s theme parks have been present in the U.S. for a long time and account for a large portion of of overall U.S. theme park attendance, the growth is likely to remain slow.

Also, with the advent of smartphones, tablets, smart TVs and other gadgets, as well as consumer adoption of broadband, multitude of entertainment options have emerged. For instance, one can easily access movies and TV shows online, record them for later, consume video and audio content on a variety of devices that make it extremely convenient to do so, and engage in social networking and social games that seem to be gaining popularity. Such devices and services do take up a significant portion of an individual’s leisure time, leaving less time for other activities. In this digital age, outdoor activities seem to have taken a backseat and this is likely to affect the growth in Disney’s theme park attendance.

Our price estimate for Disney stands at $56.50, roughly in line with the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. U.S. on Pace for Slowest Decade of Population Growth Since 1930s, Bloomberg, Dec 31 2012 [↩]