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Darth Sidious

Darth Sidious

Authentically Disney Distinctly Chinese
Original Poster
There is often a negative connotation between the big investors and banks, one at pins some blame of the more lackluster Disney strategies such as NGE and rightfully so. However, working in the business and knowing that investors want growth, something didn't truly add up with this lack of Florida CAPEX. Well folks, that chatter, which has been alive on the street in relation to Disney is now boiling over into Financial news.

The Motley Fool has run a few pieces of late challenging CFO Jay Rasulo's recent stock buy back plan, calling for more Florida expansion in the face of competition. Doing a buy back is Disney's way of saying we have no better alternatives for shareholders money, so we will return some. This has investors worried just as we all have been here for some time. They see the fierce competition and wonder why Disney is choosing to ignore it, which has been a death wish for many companies before them.

Below is the link to the latest Fool article. I will post more as I see them and perhaps we can discuss the varying opinions that will surely arise. Not all investors are pleased with complacency in the wake of competiton and I know most of us here wholeheartedly feel the same.

http://www.fool.com/investing/general/2013/09/16/disney-may-be-making-a-big-mistake.aspx
 
WDWFanDave

WDWFanDave

Well-Known Member
jmcl07 said:
There is often a negative connotation between the big investors and banks, one at pins some blame of the more lackluster Disney strategies such as NGE and rightfully so. However, working in the business and knowing that investors want growth, something didn't truly add up with this lack of Florida CAPEX. Well folks, that chatter, which has been alive on the street in relation to Disney is now boiling over into Financial news.

The Motley Fool has run a few pieces of late challenging CFO Jay Rasulo's recent stock buy back plan, calling for more Florida expansion in the face of competition. Doing a buy back is Disney's way of saying we have no better alternatives for shareholders money, so we will return some. This has investors worried just as we all have been here for some time. They see the fierce competition and wonder why Disney is choosing to ignore it, which has been a death wish for many companies before them.

Below is the link to the latest Fool article. I will post more as I see them and perhaps we can discuss the varying opinions that will surely arise. Not all investors are pleased with complacency in the wake of competiton and I know most of us here wholeheartedly feel the same.

http://www.fool.com/investing/general/2013/09/16/disney-may-be-making-a-big-mistake.aspx
Click to expand...

Interesting article, thanks for sharing that link.

Would be nice to see it get some real significant exposure...perhaps significant enough to negatively impact the stock price and get a whole lot of folks to stand up and take notice. Although, I'm sure Comcast/USO are very happy that it's happening quietly...if TWDC actually took half of the $ earmarked for buyback and just plowed it into WDW capex, well, who knows what we could see :) Imagine if they spent it in the same amount of time that they plan to do the buyback, over the next fiscal year if I'm remembering correctly...run 3 shifts a day building world class attractions that will drive incredible increases in guest attendance and subsequent spending...just think what that would add to the bottom line and overall shareholder value.

Fun to dream.
 
lebeau

lebeau

Well-Known Member
Even the finance guys are noticing!

Let me key in on the theme park challenge, specifically in Florida.

Disney may think that capital cycle is largely over in Florida, but try telling that to the competition. SeaWorld Entertainment (NYSE: SEAS ) went public earlier this year, making it easier to tap the public markets to raise money to expand its SeaWorld Orlando and Busch Gardens Tampa that compete with Disney for tourists. Early anecdotes indicate that SeaWorld is actually scaling back instead of charging forward to produce acceptable quarterly results, but that can change in a hurry.

The bigger challenge, though, will be Universal Orlando. Comcast's (NASDAQ: CMCSA ) Steve Burke also spoke at the conference, and the parent company of the Universal Orlando resort in Florida seems ready to invest heavily in taking on the House of Mouse.

Burke feels that his Universal Orlando resort can hold as many as 15,000 hotel rooms, considerably higher than the 2,400 rooms that it currently has across three on-site hotels. There's already a fourth resort going up that will increase the resort's capacity to 4,200 rooms. As Disney knows, encouraging guests to stay at a resort makes them more captive than the tens of thousands of rooms available nearby.

For Burke, this could also be personal. He was a key part of Comcast's failed buyout bid for Disney nine years ago. Burke was a longtime Disney exec, and his father was the head of Capital Cities/ABC until just before Disney acquired the ESPN parent in 1996.

However, it's undeniable that Universal Orlando's Universal Studios Florida and Islands of Adventure have been gaining momentum since opening a Harry Potter-themed area that will expand next year.
Disney may think that the days of investing heavily in its theme parks may be over, but now is not the time to be complacent.
Click to expand...
 
CRO-Magnum

CRO-Magnum

Active Member
Disney has historically done a bad job of strategic planning when it comes to its theme parks. The parks are large assets that don't make money unless people visit. And the value is perishable. Every ticket, room, or meal below maximum capacity not sold is a lost revenue opportunity. Disney's plan should be to drive attendance regardless of economic conditions. The focus during the Eisner era was a balance of capital investment, marketing, and ticket price escalation. As Disney started focusing more and more on driving profits out of its theme parks it moved over the optimum pricing point to refocus on highest margin possible. However this is not the only path to maximized profits; generating maximum revenue can do the same. The difference is subtle, but focusing on margin means charging as much as the market can bear, a dangerous proposition in a fickle market like entertainment.

Pricing to the market works until you reach the point where the market cannot bear the price. At that point you're forced to discount (or depress by actually reducing prices which NO business considers seriously). Notice how many discounts have been offered over the past decade to drive attendance? Discounting over a long period is actually more dangerous than lowering prices because it creates an expectation of future discounts which incentivizes people to withhold purchases which in turn drives discounts to generate revenue. As the price increases the target market narrows and thus the marketing to those who can afford what you're selling. At some point you risk becoming irrelevant to anyone outside your target market which necessarily includes new entrants into that market. In the US household incomes are going down, not up. Prices have risen so high Disney has effectively priced themselves out of the market for many. I argue the greater impact will be on long term returns as a larger portion of children are growing up seeing Disney parks as a visit instead of a rite of passage. Today the US dollar is weak benefiting foreigners, however currency valuation is cyclical so what happens when this trend reverses itself? I see this model as rife with risk because at some point people revolt against profiteering. As evidence consider the backlashes against high margin businesses over the years such as consumer packaged goods (generics), healthcare (HMO's), pharmaceuticals (out of country), and most recently banking (Dodd-Frank). Also look at the growing popularity of Universal Orlando, helped in large part by it's significantly better discounts.

Focusing on maximum revenue approaches profit from a return on assets point of view. In a capital investment heavy company the assets are there to be leveraged for gain. This model requires a different approach to strategy: understanding the boom/bust cycle of the hospitality and entertainment industry. Plan on large investments near the peak of boom times to drive revenue during the bust cycles, smaller investments at the trough of the bust to keep things "fresh", manipulate prices to drive off-peak attendance, and see everyone as a potential customer. This is the model of other capital intensive businesses such as hotels, airlines, restaurants, rental car companies, phone companies, and utilities. This is much closer to the original Eisner strategy, surely driven by Frank Wells and abandoned by Eisner out of arrogance or the need to drive returns.

I honestly wonder if leadership realizes that although entertainment in the form of Disney is asset intensive, the theme parks are capital investment driven? To me it appears too much pixie dust has been inhaled and thus execs delude themselves into thinking they can manage the theme parks like they do the move library.

You can milk the cow daily, but you can only serve it for BBQ once.
 
HMF

HMF

Well-Known Member
jmcl07 said:
There is often a negative connotation between the big investors and banks, one at pins some blame of the more lackluster Disney strategies such as NGE and rightfully so. However, working in the business and knowing that investors want growth, something didn't truly add up with this lack of Florida CAPEX. Well folks, that chatter, which has been alive on the street in relation to Disney is now boiling over into Financial news.

The Motley Fool has run a few pieces of late challenging CFO Jay Rasulo's recent stock buy back plan, calling for more Florida expansion in the face of competition. Doing a buy back is Disney's way of saying we have no better alternatives for shareholders money, so we will return some. This has investors worried just as we all have been here for some time. They see the fierce competition and wonder why Disney is choosing to ignore it, which has been a death wish for many companies before them.

Below is the link to the latest Fool article. I will post more as I see them and perhaps we can discuss the varying opinions that will surely arise. Not all investors are pleased with complacency in the wake of competiton and I know most of us here wholeheartedly feel the same.

http://www.fool.com/investing/general/2013/09/16/disney-may-be-making-a-big-mistake.aspx
Click to expand...
Finally, someone outside of the fan community is paying attention.
 
ford91exploder

ford91exploder

Resident Curmudgeon
PirateFrank said:
Read the article's first comment. I find it appropriate that the comment section is called "foolish readers"....
Click to expand...

If you are a member of the 'Motley Fool' you are known as a 'Foolish Reader', It's one of the best finance websites along with Seeking Alpha and Zerohedge, and I personally love Jim Cramer for sheer financial entertainment.
 
Darth Sidious

Darth Sidious

Authentically Disney Distinctly Chinese
Original Poster
ford91exploder said:
If you are a member of the 'Motley Fool' you are known as a 'Foolish Reader', It's one of the best finance websites along with Seeking Alpha and Zerohedge, and I personally love Jim Cramer for sheer financial entertainment.
Click to expand...

Isn't Cramer The Street? And I personally don't care for him but he is entertaining but nothing more than that.
 
PirateFrank

PirateFrank

Well-Known Member
ford91exploder said:
If you are a member of the 'Motley Fool' you are known as a 'Foolish Reader', It's one of the best finance websites along with Seeking Alpha and Zerohedge, and I personally love Jim Cramer for sheer financial entertainment.
Click to expand...

Oh I know that....I just still can't get past the irony, given the subject matter of that post.....
 
Darth Sidious

Darth Sidious

Authentically Disney Distinctly Chinese
Original Poster
Atomicmickey said:
Good to see a thread on this, I just read the article.

Well, if they don't listen to fans, maybe they'll listen to Wall Street?

Love this: "Disney may think that the days of investing heavily in its theme parks may be over, but now is not the time to be complacent."
Click to expand...

I think you will see a lot more of this in approximately a year if things don't change and Comcast reports huge growth in P&R. I also think once that happens and the media starts chirping, things will change for Disney.
 
ford91exploder

ford91exploder

Resident Curmudgeon
jmcl07 said:
I think you will see a lot more of this in approximately a year if things don't change and Comcast reports huge growth in P&R. I also think once that happens and the media starts chirping, things will change for Disney.
Click to expand...

With the HPL 2.0 coming online in June 2014, I expect UNI will have a banner year and with MDE rolling out right around the holidays just in time to spoil many vacations and IT WILL will (I was there over the holidays when they rolled out LILO, LILO ATE half of a 10 day DVC vacation - had the paperwork/email from Disney but there was no inventory during holidays so went home 5 days early) I expect even price increase will not save them this time
 

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