The subsequent wave of Disney theme park expansion within the U.S. is primed to be in California fairly than Florida. It is a tale of two coasts because the entertainment giant goals to take a position $60 billion in its crown jewel parks and cruises over the following decade to assist deliver more value to shareholders. In California, the town council in Anaheim — where Disneyland Resort is situated — approved last month an organization plan to expand the event of its 490-acre campus in Southern California. The ultimate vote on May 7, which coincided with Disney’s latest earnings, paved the best way for the most important expansion there for the reason that companion park, California Adventure, opened greater than 20 years ago. The choice requires Disney to place a minimum of $1.9 billion in theme parks, lodging, entertainment, shopping and dining inside 10 years. In Florida, Disney has had a harder time navigating the political landscape — resulting in Disney World development tie-ups. It’s only been a matter of months since an almost two-year legal fight between the corporate and Republican Florida Gov. Ron DeSantis got here to an end with a settlement in March. The conflict began in 2022 after Disney opposed the state’s so-called Don’t Say Gay law. That led DeSantis and state Republican lawmakers to strip Disney of its decades-old authority to self-govern the district. One other headwind for Disney in Florida is aggressive park competition from NBCUniversal, which is owned by CNBC-parent Comcast . What’s at stake The stakes are high for Disney because it commits to massive investments in parks at a time when CEO Bob Iger faces increased pressure to get a handle on the corporate’s disparate businesses, which include movies, television, sports, merchandising, and streaming. Since returning to the C-suite in late 2022, Iger has been aggressively cutting costs and restructuring operations. The stock, nevertheless, has continued to struggle. Fresh off a victory to maintain activist investor Nelson Peltz off the board, Iger must now deliver on his vision to revive Disney’s luster on Wall Street. “It’s smart that Disney keeps investing in its Parks & Experiences business because that is where the majority of its profits come from,” said Jeff Marks, the Investing Club’s director of portfolio evaluation. In its fiscal 2024 second quarter , Disney’s Parks & Experience division, which incorporates theme parks, resorts, cruises, hotels, and consumer products grew sales by nearly 10% to $8.93 billion and operating income by greater than 12% to $2.29 billion. Roughly 70% of the corporate’s EBITDA (earnings before interest, taxes, depreciation, and amortization) is being generated by Parks, which suggests the speed at which EBITDA is increasing is quicker on the Parks side than the remaining of the business. Disney’s massive multiyear capital expenditure commitment to Parks and other Experiences will likely be used to expand theme parks domestically and internationally through recent attractions in addition to cruise line and hotel capability — all of that are expected to drive more top-line growth and improve margins over time. Disney has two upcoming cruise ships launching – the Disney Treasure, which is ready to sail in December 2024, and Disney Destiny in 2025. To proceed to extend Parks and other Experiences revenue, “there are only two things you possibly can do,” said Laurent Yoon, an analyst at Bernstein. “Have more people in attendance and expand capability.” Yoon estimates the Parks business can grow mid-to-high single digits on a percentage basis within the near term, with EBITDA margins growing to the mid-30s to 40s. Return on invested capital should stay within the high teens to low 20s, which makes “a fairly phenomenal business,” he said. Sunshine State snags Wall Street is bullish on Disney’s parks business. But, along with the chilly relationship with DeSantis and Florida officials on further development, Universal is popping up the warmth in Orlando with its upcoming Epic Universe theme park, which is ready to open in 2025. Epic may have five themed worlds on 750 acres of land. “There are good reasons to be cautious about Disney’s short-term revenue growth once Epic Orlando is opened,” said Peter Supino, an analyst at Wolfe Research. He referenced that back in 2010 when Universal launched Harry Potter World in Orlando, attendance slowed in Disney World. After an initial bump when Epic opens, Supino expects things to “settle right into a duopoly market in Orlando.” “Comcast’s exposure to, and reliance on the Theme Parks segment is about to expand dramatically,” based on MoffettNathanson. “Epic Universal signals a recent phase within the Theme Park wars.” While calling Disney the “undisputed destination leader” in parks, MoffettNathanson added that “one can not help but conclude that Epic will necessarily siphon off no less than a number of the demand … that might need otherwise have ended up at Disney World.” The analysts said Disney and Comcast will “increasingly be in competition for every theme park travel dollar.” To make matters more dicey for Disney, “there’s a bit little bit of [political] friction and that is probably not going away anytime within the near future,” Yoon said. In line with the Bernstein analyst, because of this whatever Disney desires to do in Florida because it pertains to theme park expansion, could face some challenges to get done. At the identical time, Yoon said that is ultimately a mutually useful partnership where “Florida needs Disney’s income and Disney needs Florida,” which suggests the federal government within the state will likely should bend in support of Disney if it wants more tax revenue for the state. Golden State expansion While Comcast and Disney parks also compete in California, the latter has an even bigger foothold there, which is just going to get larger. “In California, the federal government is simpler to work with,” Yoon said, adding the Anaheim city council will likely proceed to pass Disney’s development proposals since it will be financially useful for the town’s local economy. Yoon anticipates a meaningful portion, probably half of the $60 billion, goes to be spent on expansion fairly than maintenance of Disney’s theme parks, with an enormous portion dedicated to California. In line with Yoon, Disney is the “most important attraction” in Anaheim, which is subsequently reliant on revenue from the corporate’s parks. The setup in Anaheim is unlike Orlando, which has multiple theme parks that the Florida city and surrounding areas can depend on outside of Disney. The Orlando-area parks of Disney and Universal are roughly 10 miles apart. Disney’s Anaheim parks are roughly 40 miles from Universal Studios Hollywood. While smaller in California, Universal Studios Hollywood is not standing still. The park confirmed last month plans to construct a high-speed outdoor roller coaster called Fast & Furious: Hollywood Drift. The ride is ready to open in 2026. Where the Club stands While the facility of Disney’s parks is welcome news for shareholders, Wall Street analysts and the Club are also focusing closely on streaming. We would like management to proceed to make strides toward streaming profitability and to make progress on cost-cutting and other items on Iger’s turnaround checklist. As discussed in last week’s May Monthly Meeting , Jim Cramer said he would consider buying more shares of Disney for the portfolio if the stock were to drop below $100. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked a couple of stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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People walk toward an entrance to Disneyland on April 24, 2023 in Anaheim, California.
Mario Tama | Getty Images
The subsequent wave of Disney theme park expansion within the U.S. is primed to be in California fairly than Florida.
It is a tale of two coasts because the entertainment giant goals to take a position $60 billion in its crown jewel parks and cruises over the following decade to assist deliver more value to shareholders.
