Disney’s (DIS) theme parks have historically been a big part of the entertainment giant’s profits — accounting for about 36% of the company’s total revenue in the most recent quarter — but recent signs of a slowdown have sparked concerns that theme parks may be losing their appeal.
In Disney’s latest earnings report, domestic operating profit fell 6% year over year, with weakness in the parks division hurting an otherwise strong report after the company reported seeing “slowing consumer demand” toward the end of the second quarter, with executives warning that this “slowdown” could continue for “several quarters to come.”
“Consumer behavior is certainly, not necessarily recessionary, but they are becoming a little bit more cautious with their money,” Disney Chief Financial Officer Hugh Johnston previously told Yahoo Finance.
Wall Street analysts are debating whether the slowdown is a temporary phenomenon as consumers cope with high inflation or a sign of a larger trend amid recent price hikes across the parks.
“My concern is whether this is a long-term issue or a short-term economic issue because pricing is getting a little out of control,” Morningstar analyst Matthew Dolgin said in an interview. “I don’t know if this is a natural cyclical issue or if they’ve gone a little overboard with their pricing, but that’s what I’m most concerned about, not the investment in the company’s business.”
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To understand why Disney found itself in this situation, it’s important to look back to the post-pandemic travel boom of a few years ago, which boosted year-over-year growth at Disney’s theme parks. “The macroeconomics seemed to be turning around, and everything was going well,” Dolgin said.
But nothing lasts forever, and maybe that’s not such a bad thing.
“The slight pullback from that is, first of all, not surprising and, secondly, it doesn’t concern me at all,” Dolgin said.
He said year-over-year growth will likely continue to slow as customers shift spending to other entertainment options, but he sees the business as still strong.
Disney’s Big Bet
Billions of dollars invested in theme parks: Magic Kingdom at Walt Disney World in Orlando. (Reuters/Octavio Jones) (Reuters/Reuters)
Last year, Disney announced plans to invest $60 billion in its theme park business over the next decade. The company recently revealed that part of these investments will include four new cruise ships and multiple new “lands” and rides at its theme parks around the world.
The story continues
Disney is also branching out into virtual worlds through its first-ever partnership with Epic Games, the parent company of Fortnite.
“I think with this expansion they have a lot of opportunity to really grow,” Dolgin said.
Third Bridge analyst Jamie Lumley agreed, positioning the expansion as a way for Disney to outperform competitors such as Comcast’s Universal (CMCSA) at a time when prices are rising and customers are cutting back on spending.
“As Disney raises prices for its theme parks every year, they’re certainly competing with other, presumably cheaper, properties for people’s leisure dollars,” he said. “Creating a bigger, more spectacular, more immersive experience is a way to better justify the costs.”
He added: “This is a venture they’re betting on and it could definitely make a big difference.”
Meanwhile, all eyes are on current Parks and Experiences Chairman Josh D’Amaro, who has a keen interest in ensuring the vitality of the parks ecosystem as he takes over from CEO Bob Iger.
During a presentation at HubSpot’s annual Inbound conference in Boston last week, D’Amaro discussed the scale of Disney’s investment in its theme parks and highlighted their place in Disney’s overall vision.
He didn’t make any new announcements, but he did list six pillars that govern Disney’s thinking: emotional connection, innovation, authenticity, attention to detail, courage and infinite thinking.
“We are relentless in our pursuit of perfection,” he said at the time.
But the race to perfection has not come without challenges, with customers weary of constant price hikes, demand slowing from peaks and recent political battles also weighing on the company’s claim to be “the happiest place on earth.”
The stock is down about 30% from five years ago and is currently trading near the low end of its 52-week range.
CEO inauguration? Disney Parks and Experiences Chairman Josh D’Amaro will be speaking at the annual Inbound Conference.
D’Amaro, a Disney veteran, joined the company in 1998 in a role at Disneyland Resort. He took over the parks and experiences division in 2020 and has since navigated a tumultuous time, including a high-profile feud with Florida Gov. Ron DeSantis and a pandemic that has brought park operations to a complete halt.
But the company has been focused on mitigating losses in its streaming division, and last month reported a first-quarter profit from its streaming business, a sharp turnaround after several painful quarters.
That’s why Lumley thinks D’Amaro is unlikely to succeed Iger, instead thinking Dana Walden, the current co-chairman of Disney Entertainment who oversees Disney’s streaming and TV studios, would likely be the next big successor.
“As important as cinema is, it’s really important that whoever replaces Bob Iger has a deep understanding of how Hollywood works, talent relations and how to execute a content strategy,” he said.
“Josh D’Amaro has certainly done a lot of good things running the parks side of things, but at the end of the day, there may be other factors to consider when thinking about who the next CEO should be.”
But one thing remains clear before Iger steps down from his executive role: The multi-billion dollar theme park gamble must pay off.
Alexandra is a senior reporter at Yahoo Finance. Follow her on Twitter. Translator Please email me at alexandra.canal@yahoofinance.com.
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