Disney with its
2% annual domestic theme park growth capex under Iger has seen revenue increase by
62% over 9 years, equating to a compound annual growth rate of
5.5%.
The unremarkable Six Flags, with a negative growth capex budget (capex is actually
less than depreciation), has seen a compound annual revenue growth rate of
5.3% in recent years.
Wow, so Disney's domestic Parks & Resorts invests more than Six Flags yet its revenue growth is about the same, even though Six Flags is not spending enough to properly maintain its amusement parks.
With a little perspective, 62% over 9 years doesn't seem so good, does it?
Why would someone want to invest intelligently?
With Eisner's higher investment levels over his 21 years, Parks & Resorts compound annual growth rate was about
11%.
Universal's Theme Parks division, with a similar investment level, has realized a compound annual growth rate of about
13% since 2006.
Interesting.
Intelligent theme park investment produces superior growth.
The Polynesian Villas & Resorts (PVR) membership lasts for 50 years. Based on the performance of similarly sized DVC resorts, PVR memberships should sell out within 3 years.
After their initial purchase, it will cost PVR members
$145/night to stay during spring break or summer at WDW's second-most expensive resort in rooms that normally start at
$543/night and go up from there.
PVR means great cash flow at the Polynesian for 3 years and subpar cash flow for 47 years.
Does anyone recall when Iger plans to retire? Did I read somewhere that they extended his contract to 2018, 3 years from now?
Are we talking about the same Disney?
Between Disneyland, the Magic Kingdom, Epcot, and TDL, Walt Disney Productions (later The Walt Disney Company) was operating or had ties to the 4 most successful and profitable theme parks in the world.
Michael Eisner wasn't hired to fix Parks & Resorts. Even in 1984, Disney's Parks & Resorts was the world leader in theme parks. In 1984, Disney's Parks & Resorts was profitable, the only successful segment in the company at that time. Eisner was hired to fix the rest of Walt Disney Productions, which was performing abysmally.
In addition to completely turning around the rest of the company, Eisner was the one who oversaw the creation of the modern WDW. He built 2 theme parks, 2 water parks, and 14 hotels. He doubled the size of DLR and invested internationally in Paris and Hong Kong. Eisner was the one who created Disney Cruise Line.
Despite inheriting the #1 theme parks in the United States (and the World), Eisner grew Disney's domestic Parks & Resorts revenue by over
650%, and total Parks & Resorts revenue by over
800%.
Kinda makes Iger's
62% domestic and
67% total seem paltry, doesn't it?
Gross margin is a function several types of expenses, with operating expense comprising the lion's share. Capex (in the form of depreciation) actually is Parks & Resorts smallest expense.
Heck, Disney spends more on the nefarious "Selling, general, administrative and other" than it does on depreciation (i.e. capex).
The problem with basing growth on higher prices is that you slowly price yourself out of your core market.
Let's look at the P&R numbers a bit more closely.
As we've already discussed, domestic P&R revenue is up
62% since Iger took charge while WDW ticket prices are up
63%. If attendance was flat, this would make sense.
However, attendance is not flat. Since 2005, domestic attendance is up
24%.
The problem is median household income is up only
17% from 2005 to 2013. (2014 numbers won't be released until September.) Vacationers can't keep up with WDW price increases. They still want to visit the parks but they can't spend like they used to. That means they spend less on all the other high margin items that Disney sells.
For example, in 2005, the "theme-park-admission-to-food,-beverage,-and-merchandise" ratio was
1.04. In other words, for every $1 Guests spent on admission, they spent $1.04 on food, beverage, and merchandise. In 2014, that number was down to
0.88, a number without precedent since Disneyland's opening in 1955.
In the end, higher prices boomerang on Disney. They've got
24% more people in the park but, relative to what they spent in 2005, those people are spending less. Disney's opex is up to handle all those extra people, yet Disney isn't realizing comparable revenue gains in other areas to offset those extra expenses.
Thus, despite an attendance increase of
24% along with higher ticket prices of
63%, domestic revenue is only up
62%. Margins become increasingly difficult to maintain because of higher attendance, resulting in Disney making quality cuts to keep margins up. This also results in Disney stretching out growth initiatives in order to prop up those same margins.
I'm not sure what your definition of financial success is, but I see a lot of red flags that suggest all is not well at WDW.
