A Closer Look At Disney’s Theme Park Performance

According to our estimates, Parks and Resorts is the most valuable segment for Disney (NYSE:DIS), accounting for more than 29% of its valuation. While U.S. parks form a major portion of this valuation, international parks are now witnessing a growth in revenues, especially with the opening of the Shanghai Park in 2016. This park saw four million visitors in the first four months of operation and the company expects Shanghai to get close to break even within a year into operation. Half of the attendance in this park is from outside of Shanghai and hotel occupancy is high.  With plans of expansion of this park already underway, Shanghai can be a key contributor of revenue and profitability for Disney’s Park’s segment.

For Q4 2016, Disney saw a 7% increase in per capita spending at its domestic parks on the back of higher admission charges and food and beverage spending. Hotel occupancy was also higher in this quarter by 2 percentage points. While the company witnessed a decline in domestic park attendance compared to last year (partly due to a strong attendance in Q4 2015 during the park’s 60th year celebration), higher per capita spending lead to revenue growth of 1% year on year in the fourth quarter.  According to our estimates, per capita guest spending at domestic parks is a key driver of Disney’s valuation and we expect this number to increase gradually from $141 in 2016 to $165 by the end of our forecast period.

Company management believes that they still have pricing leverage, not  only from raising ticket prices (which are usually justified by newer attractions) but also from creating new packages. Disney introduced flexible pricing last year with higher ticket prices during peak times and cheaper “off season” ticket. The company believes that there are several other tools to create more revenue from its existing attendance. Other growth areas linked to theme parks such as expansion of hotels and newer attractions such as Star Wars can drive growth of this segment in the long term.

For 2016, Disney’s theme park performance can be summarized as below:

1. Shanghai saw a very successful opening, could breakeven in a year and can be a key growth driver in the long term. The company did not see any negative impact on the attendance in Hong Kong due to the opening of the Shanghai Park
2. While attendance in domestic parks was lower than last year, it was partly due to higher attendance in 2015 on account of Disney’s 60th year celebrations.
3. Higher per capita spending compensated for lower attendance and led to revenue growth
4. Disneyland Paris showed disappointing results primarily due to economic uncertainty in Europe and the impact on tourism due to terror threats.

Disney believes that the opening of Avatar Land at Walt Disney World and a full year of results from the Shanghai resort in 2017 could be the key drivers of growth for this division next year.  As the company continues to invest in its Park and Resorts with new attractions and technology initiatives such as Imagineering, the Parks and Resorts segment is well positioned for continued growth and should remain a key value driver for Disney over the long term.

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