So I don't normally do new threads, but I thought I would share some information with you today that I don't really know where it would go otherwise... so, let's start a new discussion.
As many of you know, Star Wars Galaxy's Edge in Disneyland did not go according to how Disney Parks was hoping. Whereas significant money was spent to implement a virtual queue system, that system was used for less than one day. Despite a 1.5 billion dollar expansion on some of Disney's most valuable acres, attendance actually dropped by more than 50% on many weekdays in the month of June 2019 versus the month of June 2018. Only one day in June 2019 beat June 2018 in attendance. Now, you all can probably figure out that there are many reasons for this significant and unforeseen drop in attendance, but the bottom line is that revenues for Disneyland were significantly hurt enough this summer that a new management plan was given to Operations called "Close the Gap" that essentially cut every possible loss of money in order to lower the financial losses. Meanwhile, work has continued on in Disney's Hollywood Studios, where the financial investment is closer to 1.1 billion, and the dynamics of the park mean it's unlikely we will see the same loss of crowds at DHS as was seen at DLR. Still, Disney has had to reverse course and offer more promotional packages to try to bolster attendance at WDW for the fall, despite the new land opening, in response to lackluster hotel bookings for that period of time.
So why does this matter to the stock? In order to understand, you have to consider that as big as the Marvel movies and the TV and the merchandise, etc, etc, all are... Disney Parks accounts for the largest revenue stream for the Walt Disney Company... by a lot. In fact, Disney Parks makes up more than 40% of all of Disney's revenue and profit. When you hear about Disney doing great with Lion King in China, remember that the vast majority of that money goes to the Chinese government. Disney Parks is where the money is. And of the Disney Parks, one spot stands alone as the big kahuna: Walt Disney World. Consider for a moment that all of Disney Parks' international parks generate a whopping profit of... wait for it... wait for it... 2 billion dollars. And almost all of that 2 billion dollar profit comes from the Japanese parks; Paris barely makes a profit any given year, and the others currently take losses on average. The vast majority of the $20,000,000,000+ revenue for Disney Parks comes from the domestic parks. And of the domestic parks, more than 70% of all revenue comes from Walt Disney World. That revenue is taxed at a mind-blowing lower number, with vastly lower overhead costs. Walt Disney World is the crown jewel in all of the Walt Disney Company's gems. Nothing comes close to the amount of money it makes for the company.
So now, in late summer of 2019, a big surprise is coming down the pike for investors. Disney's Earnings Per Share is dropping significantly, and seemingly out of the blue. Just this week it was announced that Disney had broken the yearly record for box office revenue IN JULY. So how in the world can Disney's EPS be down more than 5% and more than estimated just months ago? https://finance.yahoo.com/news/earnings-preview-walt-disney-dis-143802497.html
The answer is the domestic Disney Parks. Disneyland took a beating this summer with a 1.5 billion dollar investment not generating the crowds Disney expected. That's an issue, but the bigger issue is in Florida where a 1.1 billion dollar investment is supposed to drive massive crowds to the crown jewel in all of Disney's revenue generating quiver. And so far, that's not looking to occur in this calendar year, based on hotel bookings. And thus, EPS are beginning to drop... the first time that the Star Wars IP has had a negative impact on the valuation. You see, Disney could take a hit and lose hundreds of millions on Solo, because that's their movie side and they can absorb it better. Disney does NOT want to take the hit on the domestic parks side because Disneyland just lost millions this summer, billions have been invested for a ten year minimum ROI, and a decade+ investment cannot be so easily absorbed as a flop.
So what does all of this mean?
Well, first, Iger is aware of the potential issue with Star Wars as an IP and steps are being taken to fix it. Billions of dollars are on the line for years to come, and that's without even considering how much is riding on Star Wars driving adoption of Disney's streaming service (and there's tens of billions of dollars ANNUALLY riding on that). Chapek is aware now that things have got to change at the two Star Wars Galaxy Edge areas, although no changes are likely to be announced or determined until after January 2020. Things on the table are integration of the original trilogy, bringing in more actors (although this is expensive for DLR), and even quickly pushing out a significant financial investment in a quick expansion to boost the offerings. So whereas before I have been a bit gloomy on my predictions for Star Wars going forward, I'm actually beginning to see that things may change; because even with record movie profits, Disney's EPS is dropping and it's directly related to Star Wars. And that's what it takes to get change to happen - the money has to talk.
The money is talking. In order for Disney to get their Disney+ service off the ground, they have to take massive losses for years on years before it can become profitable. And then, if all goes according to plan, it becomes insanely profitable (https://www.cnbc.com/2019/07/23/morgan-stanley-disneys-earnings-will-nearly-double-in-4-years.html). But to get there, Disney Parks and specifically Walt Disney World -- the most profitable part of Disney -- has to make the money to absorb the losses. Star Wars was supposed to get them there... and now we'll see what steps they take to make sure that's just what happens.
As many of you know, Star Wars Galaxy's Edge in Disneyland did not go according to how Disney Parks was hoping. Whereas significant money was spent to implement a virtual queue system, that system was used for less than one day. Despite a 1.5 billion dollar expansion on some of Disney's most valuable acres, attendance actually dropped by more than 50% on many weekdays in the month of June 2019 versus the month of June 2018. Only one day in June 2019 beat June 2018 in attendance. Now, you all can probably figure out that there are many reasons for this significant and unforeseen drop in attendance, but the bottom line is that revenues for Disneyland were significantly hurt enough this summer that a new management plan was given to Operations called "Close the Gap" that essentially cut every possible loss of money in order to lower the financial losses. Meanwhile, work has continued on in Disney's Hollywood Studios, where the financial investment is closer to 1.1 billion, and the dynamics of the park mean it's unlikely we will see the same loss of crowds at DHS as was seen at DLR. Still, Disney has had to reverse course and offer more promotional packages to try to bolster attendance at WDW for the fall, despite the new land opening, in response to lackluster hotel bookings for that period of time.
So why does this matter to the stock? In order to understand, you have to consider that as big as the Marvel movies and the TV and the merchandise, etc, etc, all are... Disney Parks accounts for the largest revenue stream for the Walt Disney Company... by a lot. In fact, Disney Parks makes up more than 40% of all of Disney's revenue and profit. When you hear about Disney doing great with Lion King in China, remember that the vast majority of that money goes to the Chinese government. Disney Parks is where the money is. And of the Disney Parks, one spot stands alone as the big kahuna: Walt Disney World. Consider for a moment that all of Disney Parks' international parks generate a whopping profit of... wait for it... wait for it... 2 billion dollars. And almost all of that 2 billion dollar profit comes from the Japanese parks; Paris barely makes a profit any given year, and the others currently take losses on average. The vast majority of the $20,000,000,000+ revenue for Disney Parks comes from the domestic parks. And of the domestic parks, more than 70% of all revenue comes from Walt Disney World. That revenue is taxed at a mind-blowing lower number, with vastly lower overhead costs. Walt Disney World is the crown jewel in all of the Walt Disney Company's gems. Nothing comes close to the amount of money it makes for the company.
So now, in late summer of 2019, a big surprise is coming down the pike for investors. Disney's Earnings Per Share is dropping significantly, and seemingly out of the blue. Just this week it was announced that Disney had broken the yearly record for box office revenue IN JULY. So how in the world can Disney's EPS be down more than 5% and more than estimated just months ago? https://finance.yahoo.com/news/earnings-preview-walt-disney-dis-143802497.html
The answer is the domestic Disney Parks. Disneyland took a beating this summer with a 1.5 billion dollar investment not generating the crowds Disney expected. That's an issue, but the bigger issue is in Florida where a 1.1 billion dollar investment is supposed to drive massive crowds to the crown jewel in all of Disney's revenue generating quiver. And so far, that's not looking to occur in this calendar year, based on hotel bookings. And thus, EPS are beginning to drop... the first time that the Star Wars IP has had a negative impact on the valuation. You see, Disney could take a hit and lose hundreds of millions on Solo, because that's their movie side and they can absorb it better. Disney does NOT want to take the hit on the domestic parks side because Disneyland just lost millions this summer, billions have been invested for a ten year minimum ROI, and a decade+ investment cannot be so easily absorbed as a flop.
So what does all of this mean?
Well, first, Iger is aware of the potential issue with Star Wars as an IP and steps are being taken to fix it. Billions of dollars are on the line for years to come, and that's without even considering how much is riding on Star Wars driving adoption of Disney's streaming service (and there's tens of billions of dollars ANNUALLY riding on that). Chapek is aware now that things have got to change at the two Star Wars Galaxy Edge areas, although no changes are likely to be announced or determined until after January 2020. Things on the table are integration of the original trilogy, bringing in more actors (although this is expensive for DLR), and even quickly pushing out a significant financial investment in a quick expansion to boost the offerings. So whereas before I have been a bit gloomy on my predictions for Star Wars going forward, I'm actually beginning to see that things may change; because even with record movie profits, Disney's EPS is dropping and it's directly related to Star Wars. And that's what it takes to get change to happen - the money has to talk.
The money is talking. In order for Disney to get their Disney+ service off the ground, they have to take massive losses for years on years before it can become profitable. And then, if all goes according to plan, it becomes insanely profitable (https://www.cnbc.com/2019/07/23/morgan-stanley-disneys-earnings-will-nearly-double-in-4-years.html). But to get there, Disney Parks and specifically Walt Disney World -- the most profitable part of Disney -- has to make the money to absorb the losses. Star Wars was supposed to get them there... and now we'll see what steps they take to make sure that's just what happens.
