What’s driving Disney’s $60 billion theme park expansion | Wilnesh News
The next wave of Disney theme park expansion plans in the U.S. will take place in California, not Florida. It’s a tale of two coasts as the entertainment giant plans to invest $60 billion over the next decade to build its crown jewel parks and cruise ships to help create more value for shareholders. In California, the Anaheim City Council, home to the Disneyland Resort, last month approved the company’s plan to expand development of its 490-acre campus in Southern California. The final vote on May 7 coincided with the release of Disney’s latest earnings, paving the way for Disney’s largest expansion since companion park California Adventure opened more than 20 years ago. The decision requires Disney to invest at least $1.9 billion over 10 years in theme parks, lodging, entertainment, shopping and dining. In Florida, Disney had a more difficult time with the political landscape – leading to the Disney World development partnership. The nearly two-year legal dispute between the company and Florida Republican Gov. Ron DeSantis came to an end in just a few months when it was settled in March. The conflict began in 2022 when Disney opposed the state’s so-called “Don’t Say Gay” law. That led DeSantis and state Republican lawmakers to strip Disney of decades of self-governing authority over the region. Another headwind Disney faces in Florida is stiff park competition from NBCUniversal, which is owned by CNBC parent Comcast. The stakes are high for Disney as it commits to massive investments in its parks and as CEO Bob Iger faces increasing pressure to take charge of the company’s disparate businesses, including film, television, Sports, marketing and streaming. Iger has been aggressively cutting costs and restructuring the business since returning to top management in late 2022. However, the stock continues to struggle. Iger had just succeeded in keeping activist investor Nelson Peltz off the board, and now he must realize his vision to restore Disney’s luster on Wall Street. “Disney is smart to continue investing in its parks and experiences business because that’s where the majority of its profits come from,” said Jeff Marks, director of portfolio analysis at The Investment Club, which includes theme parks, resorts, cruise lines, restaurants and consumer products in The sales of the Disney Parks and Experiences Division in the second quarter of fiscal year 2024 increased by nearly 10% to US$8.93 billion, and operating income increased by more than 12% to US$2.29 billion. About 70% of the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) is generated by Parks, which means Parks’ EBITDA is growing faster than the rest of the business. Disney’s massive multi-year capital spending commitment to parks and other experiences will be used to expand its domestic and international theme parks with new attractions and cruise and hotel capacity – all of which are expected to drive more revenue growth over time and improve profit margins. Disney has two upcoming cruise ships – Disney Treasure will set sail in December 2024 and Disney Destiny will set sail in 2025. Something you can do,” said Laurent Yin, a Bernstein analyst. “Get more people to attend and expand capacity.” Yoon estimates that the park business can achieve mid- to high-single-digit percentage growth in the short term, with EBITDA margins growing into the mid-30s to low-40s. Returns on invested capital should remain in the high teens to mid-twenties, making it “a pretty amazing business,” he said. The Sunshine State’s pushback has Wall Street bullish on Disney’s park business. But in addition to having a frosty relationship with DeSantis and Florida officials over further development, Universal is heating up in Orlando with its upcoming Epic Universe theme park, which is set to open in 2025. Themed world lands. Wolfe Research analyst Peter Supino said: “We have good reason to be cautious about Disney’s short-term revenue growth after the opening of Epic Park in Orlando.” He mentioned that as early as When Universal launched Harry Potter World in Orlando in 2010, attendance at Disney World dropped. After the initial shock of Epic’s opening, Supino expects things to “become a duopoly in Orlando.” “Comcast’s investment and reliance on the theme park space is about to expand significantly,” said MoffettNathanson. “Epic Universal marks a new phase in the theme park wars.” MoffettNathanson ) called Disney the “undisputed destination leader” in parks, adding, “One can’t help but conclude that Epic is bound to siphon away at least some of the demand … that might otherwise go to Disney World. Analysis Disney and Comcast will “increasingly compete for theme park tourism revenue,” analysts said. Yin said that things are getting more dangerous for Disney, and “there is some (political) friction that may not go away in the near future.” That means whatever Disney wants to do in Florida, Bernstein analysts say Anything related to theme park expansion may face some challenges. At the same time, Yin said that this is ultimately a mutually beneficial partnership, and “Florida needs Disney’s revenue, and Disney needs Florida,” suggesting that the state government may have to bow to support if it wants more tax revenue disney. Golden State Expansion While Comcast and Disneyland are also competing in California, the latter has a bigger foothold there and will only get bigger. “In California, it’s easier to work with the government,” Yin said, adding that the Anaheim City Council will likely continue to pass Disney’s development proposal because of the economic benefits it would bring to the city’s local economy. Yoon expects a large portion of the $60 billion, possibly half of the $60 billion, to be spent on expanding rather than maintaining Disney theme parks, with a large portion going to California. Yoon said Disney is Anaheim’s “primary attraction” and therefore relies on revenue from the company’s parks. Anaheim’s setup is different from Orlando, which has multiple theme parks that the Florida city and surrounding areas can rely on outside of Disney. Disneyland and Universal Studios in the Orlando area are about 10 miles apart. Disney’s Anaheim campus is approximately 40 miles from Universal Studios Hollywood. Although California is smaller, Universal Studios Hollywood isn’t standing still. The park last month confirmed plans to build a high-speed outdoor roller coaster called “The Fast and the Furious: Hollywood Drift.” The ride will open in 2026. We expect management to continue making progress on streaming profitability, as well as on cost cutting and other items on Iger’s turnaround list. As discussed at last week’s May monthly meeting, Jim Cramer said he would consider buying more Disney stock for his portfolio if the stock fell below $100. (Jim Cramer’s Charitable Trust has long held DIS. For a full list of stocks, see here.) 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On April 24, 2023, people walked towards the entrance of Disneyland in Anaheim, California.
Mario Tama | Getty Images
next wave disney US theme park expansion plans to take place in California, not Florida.
It’s a tale of two coasts as the entertainment giant plans to invest $60 billion over the next decade to build its crown jewel parks and cruise ships to help create more value for shareholders.
