Disney (NYSE:DIS) has been riding high on strong attendance in its theme parks this year. The U.S. theme parks and resorts account for close to 25% of its revenues and around 15% to its stock value according to our estimates. The low value contribution can be attributed to lower EBITDA (earnings before interest, taxes, depreciation and amortization) margins and high capital expenditure associated with this business. The strong attendance and higher per capita guest spend driven by rising ticket prices have fueled the theme parks’ revenue growth.
We expect the attendance growth to continue in the coming years due to a recovery in the U.S. economy. Moreover, the company has made continuous efforts to bring in newer rides into the theme parks, and it will be interesting to see if Disney decides to bring a Star Wars theme to its parks given the recent acquisition of LucasFilm (See – Disney May Bring The Force To Orlando With Star Wars Theme Park). The theme parks business is important for Disney as it provides 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.
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What Is Driving Growth In Its Theme Parks?
In the latest quarterly filings, Disney saw a 7% rise in theme parks revenues to $3.7 billion despite an unfavorable impact due to a shift in timing of the Easter holiday. The theme parks business provides stable cash flows to Disney, and the business is driven by attendance in the parks and per capita guest spending, which after tumbling 6% in 2009, rose 3% in 2010, 8% in 2011 and 7% in 2012. In Q3 2013, per capita guest spend rose by 7%.  The growth in spend can be primarily attributed to higher ticket prices (See – Disney Hikes Theme Park Ticket Prices But It Means Little For Shareholders). The company hasn’t resorted to any special pricing for the slower months and has been increasing the ticket prices consistently every year.
On the other hand, 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. Disney’s Orlando Park alone had 48.5 million visitors last year. 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 estimate Disney’s U.S. theme parks attendance to reach close to 90 million by the end of our forecast period. Since theme parks are a destination for leisure activities, the attendance is somewhat linked to the state of the economy. The U.S. economy grew at a seasonally adjusted annual rate of 1.7% in the second quarter of 2013, as businesses spent more and the federal government cut less.  We believe Disney’s theme parks will continue to do well as the economy recovers. However, any deviations in the attendance will not have any significant impact on the price estimate due to its relatively lower contribution.Notes:
- Disney’s SEC Filings [↩]
- US economy grew by 1.7% in second quarter as government eases cuts, The Guardian, Jul 31, 2013 [↩]