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Walt Disney World’s Biggest Investment since 1998

ParentsOf4

Well-Known Member
Original Poster
With the fiscal year complete, it’s time to comment on the financial performance of Disney’s Parks & Resorts (P&R). (Disney’s fiscal year runs from October to September.)

Disney’s P&R segment is divided into two unequal parts. Domestic P&R includes Walt Disney World (WDW), Disneyland Resort (DLR), Disney Cruise Line (DCL), and Disney Vacation Club (DVC). International P&R includes Disneyland Paris (DLP), Hong Kong Disneyland (HKDL), and the recently opened Shanghai Disneyland (SDL). (Disney has no ownership interest in Tokyo Disneyland.) Disney retains full ownership of its domestic ventures, while Disney shares ownership of its overseas resorts.

Let’s start with the good news. There’s a lot of it in the United States.

Domestic Parks & Resorts

Domestic P&R operations had an excellent year, with operating margin up to an outstanding 24.8%, a margin the U.S. parks have not seen since 1990.

Disney Domestic P&R Operating Margin.jpg

Domestic revenue was up a weak 4.6%. For reference, it averaged 10.0% from 2012 to 2015. The slow grow is a bit deceptive since last year’s number included an extra week. Still, even taking that into account, it’s the weakest performance since the last recession despite the most favorable consumer market in nearly a decade. Operating income was up 14.7%, better but still below its recent annual average of 21.3%.

Domestic attendance was down 1%, the effect of an announced strategy to increase prices to ease overcrowding through higher prices. Again, last year included an extra week. Over a comparable period attendance was up by about 1%. Really though, the goal was to improve margin by driving away low-value customers. It’s a tactic employed by many businesses today, where total profit is less important than return on investment. Some will point to attendance as a sign that Disney has overreached but, in doing so, they’ll miss what Disney is really trying to achieve: higher margin. Per Capita Guest Spending (PCGS) was up a healthy 7%, roughly where’s it’s been since 2012; Guests are still spending.

Hotel occupancy improved to 89%, up considerably from a few years ago when it averaged 81%. There’s a little smoke-and-mirrors here. The actual number of occupied rooms fell slightly from last year when the occupancy rate was 87%. (The number of available room nights decreased by 2.5%. Again, last year included an extra week, accounting for most but not all of the decline in available room nights.) Whether its 88% or 89%, it’s still a very good number. Per Room Guest Spending (PRGS) was up a weak 3.4% compared to the previous 4 years when it averaged 5.2%. Let’s see what happens with next year’s unusually steep 4.5% rack rate increase.

Most exciting is that Disney is spending some serious money at WDW and DLR to build new attractions. Estimated theme park growth capital expenditure (i.e. capex less depreciation) was $833M in 2016, a number Disney’s domestic theme parks haven’t seen since 2000.

Disney Domestic Theme Park Investment.jpg

To give this some perspective, a Clinton was in the White House in 2000. 9/11 was simply the day after 9/10. The Cubs, White Sox, and Red Sox had not won a World Series in a combined 257 years. With several major projects under way, fans of Walt Disney World should have a lot to look forward to in the coming years. Those of you too young to remember should get a taste of what it what like in the 1980s and 1990s.

I realize that many are concerned with recent artistic choices as well as some embarrassingly tacky money grabs (seriously, cabanas at the theme parks?) but Disney’s domestic theme parks performed well and are being infused with large investment dollars. For fans of Walt Disney World, it’s the best news in a long time.

International Parks & Resorts

Overseas financial performance is a different matter. Overseas, it’s a mess.

Disney’s international P&R operations continue their downward spiral. Operating loss finished at –$299M in FY2016, almost tripling last year’s loss of –$105M. There’s little good news here, other than announced investments at all three international resorts designed to improve future financial performance.

DLP’s operating loss plummeted to –€242M, with Disney carrying 81% of this. Loses would have been higher if Disney had not waved royalties and management fees in the fourth quarter. Total attendance at the two theme parks was 13.4M, down 9.5%, while PCGS was up a pitiful €0.34. At the hotels, occupancy was down 2% to 77% with PRGS at €235, dropping back to where it was in 2013. Not only is attendance and occupancy down but, combined, Guests are spending less than what they did last year. Disney suggested these declines were the result of the “lingering effect of terrorism and economic and political uncertainty”. However, it must be remembered that DLP’s numbers have been unhealthy since its opening in 1992, with DLP losing money the last 4 consecutive years. Disney took over majority ownership of EuroDisney last year and has plans to restore DLP to profitability through new theme park offerings, the traditional life blood of amusement parks.

HKDL has yet to release earnings for the completed 2016 fiscal year. (Typically it waits several months before doing so.) During Disney’s latest earnings call, Iger suggested that HKDL wasn’t impacted by the opening of SDL: “we haven't seen a negative impact at Hong Kong due to Shanghai at all. In fact, there was some uptick initially on Hong Kong attendance when Shanghai opened.” What Iger didn’t mention is that attendance plummeted by 9.3% in 2015, and fell another 6.1% for the first three quarters of 2016. In 2014, 48% of HDL’s attendance came from mainland China. That dropped to 41% in 2015. To address these declines, Disney laid off 100 employees and announced plans to spend $1.4B on new attractions (with more than half coming from the Hong Kong government). With construction scheduled to complete in 2023, things could get worse before they get better.

One might expect SDL to be a bright spot; certainly Disney is trying to sell it that way to Wall Street: “The financial results for the park’s first full quarter of operations were ahead of our expectations. As we look to fiscal 2017, we expect Shanghai Disney Resort to be very close to breakeven for the year.” Yet SDL is off to less than a stellar beginning, with appreciable losses over its first 4 months of operation. This was expected. Still, it’s a staggering amount considering Disney’s positive reaction to attendance.

Iger reported that SDL’s attendance was 4 million during its first 4 months of operation and gave guidance without giving guidance: “Some of you may infer from this early performance that we could achieve 10 million in attendance in the park’s first year – a number we would be thrilled with, but we are not providing any annual guidance at this point”. (Sorry but if you are saying you’d be “thrilled” with 10 million, then you are giving guidance.) 10 million visitors would be excellent for a non-castle theme park. However, 10 million would place it well below the 3 profitable castle parks in Anaheim, Orlando, and Tokyo, and on par with Paris’ castle park where loses continue to accumulate. Considering that SDL opened during peak season with a lot of buzz in a country of 1.4 billion, 4 million does not sound particularly good.

Recalling Iger’s statement that “Over 300 million people will be able to travel to Shanghai Disneyland within a 3-1/2 hour trip” and his more recent statement that “more than half our Guests come from outside Shanghai”, it’s unclear how many of SDL’s first 4 million Guests will transform into repeat visitors, and how many were one-timers wanting to see what the hubbub was all about.

Arguably more important than attendance is spending. Iger emphasized “that consumers are staying longer” than expected. He didn’t say Guests are spending more than expected. This could be bad, very bad. Staying longer without increased spending means more expense without additional revenue. Yet Disney reported an aggregate International P&R PCGS increase of 5%, while PCGS was up less than 1% at DLP in 2016 and 3% at HKDL in 2015. This suggests spending was pretty good at SDL. If so, it’s puzzling why Iger didn’t highlight this.

Meanwhile, influential Chinese billionaire Wang Jianlin continues to threaten to make SDL “unprofitable”, going so far as to hire former Hong Kong Disneyland Managing Director Andrew Kam.

Finally, remember that with the exception of Tokyo Disneyland (which Disney does not own), there has never been a successful Disney theme park outside the United States. Despite widespread name recognition, 76.6% of company-wide sales are in the United States and Canada. Disney’s brand of Americana has shown to be a tough sell overseas.

Taken together, it’s unclear which way SDL will go. It’s much too early to suggest that SDL will fail. However, it’s also too soon to declare it a success. Disney is predicting SDL will nearly breakeven in fiscal 2017, with profitability achieved after that. We will see.

As I have for years, I’ll continue to monitor Disney’s theme parks and let you know what I think as more numbers are released.
 
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OvertheHorizon

Well-Known Member
Disney has secondary reasons for wanting to open the park in Shanghai. Mainly for its impact on future Disney movie business in China and the spin off merchandise sales will bring. But the comment about International parks under-performing might, hopefully, encourage Disney to continue to pursue investments in WDW and DL
 

Soarin' Over Pgh

Well-Known Member
Bravo, Po4. I always love your reports and have been patiently waiting for a juicy one and you've seriously delivered. You need a donate button or something.

My only thoughts are how Disney is going to plump the numbers at HKDL to appease the puppet masters. My initial thought was a two-for-one Disney Cruise Line international journey from the USA To Hong Kong with a nice lengthy stay to...explore. They would hit a few key issues- attendance from first-timers (US residents) and a possible way to tap unused resources by directing US market to HKDL. Does HKDL offer residents any discounts?

On paper it sounds great for Walt Disney World but reality is the timeline is so drawn out, we are basically looking at a ten year build time while Disney grabs the customers by the ankles and thoroughly shaking them upside down for every last cent during it.

That said I'm happy that money is being spent on the majority of the parks. Looking forward to others thoughts on this killer post by Po4. :happy:
 

danlb_2000

Well-Known Member
With the fiscal year complete, it’s time to comment on the financial performance of Disney’s Parks & Resorts (P&R). (Disney’s fiscal year run from October to September.)

Disney’s P&R segment is divided into two unequal parts. Domestic P&R includes Walt Disney World (WDW), Disneyland Resort (DLR), Disney Cruise Line (DCL), and Disney Vacation Club (DVC). International P&R includes Disneyland Paris (DLP), Hong Kong Disneyland (HKDL), and the recently opened Shanghai Disneyland (SDL). (Disney has no ownership interest in Tokyo Disneyland.) Disney retains full ownership of its domestic ventures, while Disney shares ownership of its overseas resorts.

Let’s start with the good news. There’s a lot of it in the United States.

Domestic Parks & Resorts

Domestic P&R operations had an excellent year, with operating margin up to an outstanding 24.8%, a margin the U.S. parks have not seen since 1990.

View attachment 176440

Domestic revenue was up a weak 4.6%. For reference, it averaged 10.0% from 2012 to 2015. The slow grow is a bit deceptive since last year’s number included an extra week. Still, even taking that into account, it’s the weakest performance since the last recession despite the most favorable consumer market in nearly a decade. Operating income was up 14.7%, better but still below its recent annual average of 21.3%.

Domestic attendance was down 1%, the effect of an announced strategy to increase prices to ease overcrowding through higher prices. Again, last year included an extra week. Over a comparable period attendance was up by about 1%. Really though, the goal was to improve margin by driving away low-value customers. It’s a tactic employed by many businesses today, where total profit is less important than return on investment. Some will point to attendance as a sign that Disney has overreached but, in doing so, they’ll miss what Disney is really trying to achieve: higher margin. Per Capita Guest Spending (PCGS) was up a healthy 7%, roughly where’s it’s been since 2012; Guests are still spending.

Hotel occupancy improved to 89%, up considerably from a few years ago when it averaged 81%. There’s a little smoke-and-mirrors here. The actual number of occupied rooms fell slightly from last year when the occupancy rate was 87%. (The occupancy rate increased by 2% because the number of available room nights decreased by 2.5%.) Whether its 87% or 89%, it’s still a good number. Per Room Guest Spending (PRGS) was up a weak 3.4% compared to the previous 4 years when it averaged 5.2%. Let’s see what happens with next year’s unusually steep 4.5% rack rate increase.

Most exciting is that Disney is spending some serious money at WDW and DLR to build new attractions. Estimated theme park growth capital expenditure (i.e. capex less depreciation) was $833M in 2016, a number Disney’s domestic theme parks haven’t seen since 2000.

View attachment 176441

In your second chart, what causes negative investment numbers?

To give this some perspective, a Clinton was in the White House in 2000. 9/11 was simply the day after 9/10. The Cubs, White Sox, and Red Sox had not won a World Series in a combined 257 years. With several major projects under way, fans of Walt Disney World should have a lot to look forward to in the coming years. Those of you too young to remember should get a taste of what it what like in the 1980s and 1990s.

I realize that many are concerned with recent artistic choices as well as some embarrassingly tacky money grabs (seriously, cabanas at the theme parks?) but Disney’s domestic theme parks performed well and are being infused with large investment dollars. For fans of Walt Disney World, it’s the best news in a long time.

International Parks & Resorts

Overseas financial performance is a different matter. Overseas, it’s a mess.

Disney’s international P&R operations continue their downward spiral. Operating loss finished at –$299M in FY2016, almost tripling last year’s loss of –$105M. There’s little good news here, other than announced investments at all three international resorts designed to improve future financial performance.

DLP’s operating losses plummeted to –€242M, with Disney carrying 81% of this. Loses would have been higher if Disney had not waved royalties and management fees in the fourth quarter. Total attendance at the two theme parks was 13.4M, down 9.5%, while PCGS was up a pitiful €0.34. At the hotels, occupancy was down 2% to 77% with PRGS at €235, dropping back to where it was in 2013. Not only is attendance and occupancy down but, combined, Guests are paying less than what they did last year. Disney suggested these declines were the result of the “lingering effect of terrorism and economic and political uncertainty”. However, it must be remembered that DLP’s numbers have been unhealthy since its opening in 1992, with DLP losing money the last 4 consecutive years. Disney took over majority ownership of EuroDisney last year and has plans to restore DLP to profitability through new theme park offerings, the traditional life blood of amusement parks.

HKDL has yet to release earnings for the completed 2016 fiscal year. (Typically it waits several months before doing so.) During Disney’s latest earnings call, Iger suggested that HKDL wasn’t impacted by the opening of SDL: “we haven't seen a negative impact at Hong Kong due to Shanghai at all. In fact, there was some uptick initially on Hong Kong attendance when Shanghai opened.” What Iger didn’t mention is that attendance plummeted by 9.3% in 2015, and fell another 6.1% for the first three quarters of 2016. In 2014, 48% of HDL’s attendance came from mainland China. That dropped to 41% in 2015. To address these declines, Disney laid off 100 employees and announced plans to spend $1.4B on new attractions (with more than half coming from the Hong Kong government). With construction scheduled to complete in 2023, things are likely to get worse before they get better.

One might expect SDL to be a bright spot; certainly Disney is trying to sell it to Wall Street that way: “The financial results for the park’s first full quarter of operations were ahead of our expectations. As we look to fiscal 2017, we expect Shanghai Disney Resort to be very close to breakeven for the year.” Yet SDL is off to less than a stellar beginning, with appreciable losses over its first 4 months of operation. This was expected. Still, it’s a staggering amount considering Disney’s positive reaction to attendance.

Iger reported that SDL’s attendance was 4 million during its first 4 months of operation and gave guidance without giving guidance; “Some of you may infer from this early performance that we could achieve 10 million in attendance in the park’s first year – a number we would be thrilled with, but we are not providing any annual guidance at this point”. (Sorry but if you are saying you’d be “thrilled” with 10 million, then you are giving guidance.) 10 million visitors would be excellent for a non-castle theme park. However, 10 million would place it well below the 3 profitable castle parks in Anaheim, Orlando, and Tokyo, and on par with Paris’ castle park where loses continue to accumulate. Considering that SDL opened during peak season with a lot of buzz in a country of 1.4 billion, 4 million does not sound particularly good.

Recalling Iger’s statement that “Over 300 million people will be able to travel to Shanghai Disneyland within a 3-1/2 hour trip” and his more recent statement that “more than half our Guests come from outside Shanghai”, it’s unclear how many of SDL’s first 4 million Guests will transform into repeat visitors, and how many were one-timers wanting to see what the hubbub was all about.

Arguably more important than attendance is spending. Iger emphasized “that consumers are staying longer” than expected. He didn’t say Guests are spending more than expected. This could be bad, very bad. Staying longer without increased spending means more expense without additional revenue. Yet Disney reported an aggregate International P&R PCGS increase of 5%, while PCGS was up less than 1% at DLP in 2016 and 3% at HKDL in 2015. This suggests spending was pretty good at SDL. If so, it’s puzzling why Iger didn’t highlight this.

Meanwhile, influential Chinese billionaire Wang Jianlin continues to threaten to make SDL “unprofitable”, going so far as to hire former Hong Kong Disneyland Managing Director Andrew Kam.

Finally, remember that with the exception of Tokyo Disneyland (which Disney does not own), there has never been a successful Disney theme park outside the United Stated. Disney’s brand of Americana has shown to be a tough sell.

Taken together, it’s unclear which way SDL will go. It’s much too early to suggest that SDL will fail. However, it’s also too soon to declare it a success. Disney is predicting SDL will nearly breakeven in fiscal 2017, with profitability achieved after that. We will see.

As I have for years, I’ll continue to monitor Disney’s theme parks and let you know what I think as more numbers are released.
In your second chart, what causes negative investment numbers?
 

the.dreamfinder

Well-Known Member
Disney has secondary reasons for wanting to open the park in Shanghai. Mainly for its impact on future Disney movie business in China and the spin off merchandise sales will bring. But the comment about International parks under-performing might, hopefully, encourage Disney to continue to pursue investments in WDW and DL
And those secondary reasons were part of Disney's desire for a Disney Channel in mainland China. TWDC could reach and educate a large audience about Disney with a higher profit product. As strange as it sounds, Disney settled for a theme park because they couldn't start a cable network in the Middle Kingdom.
 

ford91exploder

Resident Curmudgeon
With the fiscal year complete, it’s time to comment on the financial performance of Disney’s Parks & Resorts (P&R). (Disney’s fiscal year run from October to September.)

Disney’s P&R segment is divided into two unequal parts. Domestic P&R includes Walt Disney World (WDW), Disneyland Resort (DLR), Disney Cruise Line (DCL), and Disney Vacation Club (DVC). International P&R includes Disneyland Paris (DLP), Hong Kong Disneyland (HKDL), and the recently opened Shanghai Disneyland (SDL). (Disney has no ownership interest in Tokyo Disneyland.) Disney retains full ownership of its domestic ventures, while Disney shares ownership of its overseas resorts.

Let’s start with the good news. There’s a lot of it in the United States.

Domestic Parks & Resorts

Domestic P&R operations had an excellent year, with operating margin up to an outstanding 24.8%, a margin the U.S. parks have not seen since 1990.

View attachment 176440

Domestic revenue was up a weak 4.6%. For reference, it averaged 10.0% from 2012 to 2015. The slow grow is a bit deceptive since last year’s number included an extra week. Still, even taking that into account, it’s the weakest performance since the last recession despite the most favorable consumer market in nearly a decade. Operating income was up 14.7%, better but still below its recent annual average of 21.3%.

Domestic attendance was down 1%, the effect of an announced strategy to increase prices to ease overcrowding through higher prices. Again, last year included an extra week. Over a comparable period attendance was up by about 1%. Really though, the goal was to improve margin by driving away low-value customers. It’s a tactic employed by many businesses today, where total profit is less important than return on investment. Some will point to attendance as a sign that Disney has overreached but, in doing so, they’ll miss what Disney is really trying to achieve: higher margin. Per Capita Guest Spending (PCGS) was up a healthy 7%, roughly where’s it’s been since 2012; Guests are still spending.

Hotel occupancy improved to 89%, up considerably from a few years ago when it averaged 81%. There’s a little smoke-and-mirrors here. The actual number of occupied rooms fell slightly from last year when the occupancy rate was 87%. (The occupancy rate increased by 2% because the number of available room nights decreased by 2.5%.) Whether its 87% or 89%, it’s still a good number. Per Room Guest Spending (PRGS) was up a weak 3.4% compared to the previous 4 years when it averaged 5.2%. Let’s see what happens with next year’s unusually steep 4.5% rack rate increase.

Most exciting is that Disney is spending some serious money at WDW and DLR to build new attractions. Estimated theme park growth capital expenditure (i.e. capex less depreciation) was $833M in 2016, a number Disney’s domestic theme parks haven’t seen since 2000.

View attachment 176441

To give this some perspective, a Clinton was in the White House in 2000. 9/11 was simply the day after 9/10. The Cubs, White Sox, and Red Sox had not won a World Series in a combined 257 years. With several major projects under way, fans of Walt Disney World should have a lot to look forward to in the coming years. Those of you too young to remember should get a taste of what it what like in the 1980s and 1990s.

I realize that many are concerned with recent artistic choices as well as some embarrassingly tacky money grabs (seriously, cabanas at the theme parks?) but Disney’s domestic theme parks performed well and are being infused with large investment dollars. For fans of Walt Disney World, it’s the best news in a long time.

International Parks & Resorts

Overseas financial performance is a different matter. Overseas, it’s a mess.

Disney’s international P&R operations continue their downward spiral. Operating loss finished at –$299M in FY2016, almost tripling last year’s loss of –$105M. There’s little good news here, other than announced investments at all three international resorts designed to improve future financial performance.

DLP’s operating losses plummeted to –€242M, with Disney carrying 81% of this. Loses would have been higher if Disney had not waved royalties and management fees in the fourth quarter. Total attendance at the two theme parks was 13.4M, down 9.5%, while PCGS was up a pitiful €0.34. At the hotels, occupancy was down 2% to 77% with PRGS at €235, dropping back to where it was in 2013. Not only is attendance and occupancy down but, combined, Guests are paying less than what they did last year. Disney suggested these declines were the result of the “lingering effect of terrorism and economic and political uncertainty”. However, it must be remembered that DLP’s numbers have been unhealthy since its opening in 1992, with DLP losing money the last 4 consecutive years. Disney took over majority ownership of EuroDisney last year and has plans to restore DLP to profitability through new theme park offerings, the traditional life blood of amusement parks.

HKDL has yet to release earnings for the completed 2016 fiscal year. (Typically it waits several months before doing so.) During Disney’s latest earnings call, Iger suggested that HKDL wasn’t impacted by the opening of SDL: “we haven't seen a negative impact at Hong Kong due to Shanghai at all. In fact, there was some uptick initially on Hong Kong attendance when Shanghai opened.” What Iger didn’t mention is that attendance plummeted by 9.3% in 2015, and fell another 6.1% for the first three quarters of 2016. In 2014, 48% of HDL’s attendance came from mainland China. That dropped to 41% in 2015. To address these declines, Disney laid off 100 employees and announced plans to spend $1.4B on new attractions (with more than half coming from the Hong Kong government). With construction scheduled to complete in 2023, things are likely to get worse before they get better.

One might expect SDL to be a bright spot; certainly Disney is trying to sell it that way to Wall Street: “The financial results for the park’s first full quarter of operations were ahead of our expectations. As we look to fiscal 2017, we expect Shanghai Disney Resort to be very close to breakeven for the year.” Yet SDL is off to less than a stellar beginning, with appreciable losses over its first 4 months of operation. This was expected. Still, it’s a staggering amount considering Disney’s positive reaction to attendance.

Iger reported that SDL’s attendance was 4 million during its first 4 months of operation and gave guidance without giving guidance; “Some of you may infer from this early performance that we could achieve 10 million in attendance in the park’s first year – a number we would be thrilled with, but we are not providing any annual guidance at this point”. (Sorry but if you are saying you’d be “thrilled” with 10 million, then you are giving guidance.) 10 million visitors would be excellent for a non-castle theme park. However, 10 million would place it well below the 3 profitable castle parks in Anaheim, Orlando, and Tokyo, and on par with Paris’ castle park where loses continue to accumulate. Considering that SDL opened during peak season with a lot of buzz in a country of 1.4 billion, 4 million does not sound particularly good.

Recalling Iger’s statement that “Over 300 million people will be able to travel to Shanghai Disneyland within a 3-1/2 hour trip” and his more recent statement that “more than half our Guests come from outside Shanghai”, it’s unclear how many of SDL’s first 4 million Guests will transform into repeat visitors, and how many were one-timers wanting to see what the hubbub was all about.

Arguably more important than attendance is spending. Iger emphasized “that consumers are staying longer” than expected. He didn’t say Guests are spending more than expected. This could be bad, very bad. Staying longer without increased spending means more expense without additional revenue. Yet Disney reported an aggregate International P&R PCGS increase of 5%, while PCGS was up less than 1% at DLP in 2016 and 3% at HKDL in 2015. This suggests spending was pretty good at SDL. If so, it’s puzzling why Iger didn’t highlight this.

Meanwhile, influential Chinese billionaire Wang Jianlin continues to threaten to make SDL “unprofitable”, going so far as to hire former Hong Kong Disneyland Managing Director Andrew Kam.

Finally, remember that with the exception of Tokyo Disneyland (which Disney does not own), there has never been a successful Disney theme park outside the United Stated. Disney’s brand of Americana has shown to be a tough sell.

Taken together, it’s unclear which way SDL will go. It’s much too early to suggest that SDL will fail. However, it’s also too soon to declare it a success. Disney is predicting SDL will nearly breakeven in fiscal 2017, with profitability achieved after that. We will see.

As I have for years, I’ll continue to monitor Disney’s theme parks and let you know what I think as more numbers are released.
Amazing analysis as always - but it seems that the operating margin gains have been created by huge cuts in quality/service/operating hours. How do you correlate that, To me at least it seems that Disney is milking everything it can as it's spending patterns more closely resemble a company out of cash so it's managers can reap a few more bonuses before letting everything crash.
 

egg

Well-Known Member
Great post! Thank you for taking the time to do that. On the international parks...

I do believe that Disney should continue to invest in the international resorts, to build them into long-term successes. Some may say that it's a fruitless effort, but it helps expand the company into those regions and creates more consumers in ways that these numbers don't show. I do fear that the next CEO may see investment in international parks as fruitless.

About SDL... I agree, and a park's first year is often its most crucial! It's not only whether those people will return, it's also what they say to their friends and family. Do they convince them to visit or convince them not to? Do they grow the customer base or shrink it? Paris and Hong Kong had less-than-stellar reputations at opening (for different reasons), but meanwhile, the three very successful resorts all got off to fiery starts. Reputation at opening plays a huge role, and I hope SDL is being well-recieved.

Wang... oh dear. This past August, he temporarily shut down his indoor movie theme park in Wuhan after it was drawing an average of 200 visitors a day. That's compared to a goal of over 8,000 a day. Failing would be an understatement. And he plans to open 15 more of these types of things by 2020. Strange to see the richest guy in China spend money so poorly.
He recently took a trip to SDL to "study," so maybe the quality of his parks will improve, or maybe he'll just infringe on Disney's intellectual property. Will be interesting to see what turn this takes.

Thanks again for writing this. It explains a lot of numbers that I otherwise wouldn't fully understand.
 
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DDLand

Well-Known Member
Thanks as always @ParentsOf4!

I personally have mixed expectations for different segments.

Hong Kong Disneyland Resort: I am extremely negative on the future of this park. The attendance decline is disturbing and only likely to get worse. This is all coming the same time their pass holder program has been improving. They're trading in high spending and hotel capacity utilizing Chinese Mainland guests for increasing numbers of local Hong Kong residents who spend less per day and don't need hotel rooms. I suspect their hotel occupancy is sinking even as they're about to boost total capacity by 75%. This is really a nightmare in the making. They're about to be slammed by a huge number of factors that could not have aligned in a worse way.

The original estimates made back in 1999 called for the park reaching a point by the mid 2020s of a sustained 10.35ish million if I recall. That was with much less investment too. Earlier this year Andrew Kam's stated goal was reaching 11 Million Attendance by 2022. Now their new goal is 9.5 Million by 2025. This park has never met expectations and I doubt it's going to start meeting them now.

Disney is only going to be spending a little more than 100 Million a year for the next 6 years on this project. I wouldn't be shocked if Disney is willing to accept this Park's fate as a glorified regional tourist destination. Shanghai will be the global powerhouse in the same tradition as Walt Disney World. Or at least that's the plan.

Disneyland Paris Resort: I still have some hope in this property. Yet it still remains a struggling entity. While things have been improving in a quality stand point, they still have one of the worst theme parks in the chain dragging them down. I'm getting to the point where I want them to announce a Disney California Adventure style Redo of Walt Disney Studios or just sell the Resort to some other party. They have had huge progress in fixing it, but the glaring truth still can't be ignored; Walt Disney Studios is a disaster.

Ironically with total attendance at 13.4 Million guests coming to the two theme parks, it may actually be within the realm of possibility that Shanghai Disneyland might surpass Parc Disneyland in it's first year of operation.

In many ways Disneyland Paris remains a victim of WDW's success.

Shanghai Disney Resort: I'm more bullish on this than any other international Resort. It seems like performance has been proceeding at a good pace, and though it will cool off a bit as the weather cools, these first four months have been promising. I'm of the mindset that as long as they keep making substantive additions and have high guest satisfaction things will fall into place. They have a great start and they don't appear to be blowing it. I think they should focus on adding hotels too. Disney represents safety and quality that can easily be leveraged, and already has with the two existing properties.

I take a little bit of a different view on the guest's staying longer aspect. For me that can only be a good thing. That means people actually like the place and want to stay and are captivated by it. It's true that there are some added costs with increased labor being demanded, but I suspect that this is mostly negligible because the park was already going to be open during those hours anyway. Guests staying longer would most primarily impact lines and other wait times. Which in turn could have a bad effect on customer sat. We'll see.

They need to get their next expansion going as soon as possible beyond Toy Story Land. Everest and the other E Tickets need to get done soon to sustain forward momentum.

It's on track to break even, which is a huge accomplishment for a park this early in its lifecycle.

At a time when Disney's competitors are making huge acquisitions, I hope Disney remains focused on building out the parks. New hotels and attractions seem like such low hanging fruit at domestic properties beyond the announced additions. Disneyland alone could add several thousand new hotel rooms without breaking a sweat. At a time when the international parks represent profound risk, domestic represent a much more sure bet.

I hope they take the opportunity.
 
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ParentsOf4

Well-Known Member
Original Poster
In your second chart, what causes negative investment numbers?
Capital Expenditure (capex) is the purchase of an asset that will benefit a company for several years. Capex can be lumped into two broad categories, maintenance and investment (or growth).

Disney replacing an old bus with a new bus can be thought of as maintenance capex. Disney adding a new bus to increase the size of its fleet can be thought of as growth capex.

When Disney buys that bus, its purchase price does not impact profit immediately. Instead, the cost of the purchase is spread out over the number of years it will be used. This is called "depreciation". It's this depreciation that impacts profit.

Let's say that a Disney bus costs $500K and Disney intends to keep that bus for 10 years. That $500K does not reduce profit by $500K the year it is purchased. Instead, that bus affects profit for 10 years by $50K each year in the form of depreciation. (Disney uses the straight-line method to depreciate assets.)

At the end of 10 years, Disney should sell that bus and buy a new one. However, management types looking to save a buck might decide to keep that bus for 11, 12, or even 13 years. Instead of you and I riding a new bus, we are riding an 11, 12, or 13-year old bus.

Without detailed disclosures, a rule-of-thumb is to estimate maintenance capex to be equal to depreciation. Amounts spent below depreciation are (or should be) for maintenance. Amounts spent above depreciation are for growth (or investment).

Investment (or growth) capex can be negative when depreciation is greater than total capex.
 
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OvertheHorizon

Well-Known Member
Without detailed disclosures, a rule-of-thumb is to estimate maintenance capex to be equal to depreciation. Amounts spent below depreciation are (or should be) for maintenance. Amounts spent above depreciation are for growth (or investment).

Investment (or growth) capex can be negative when depreciation is greater than total capex.
Reading your reply makes me wish you had been my financial accounting professor in my Master's program. :)
 

the.dreamfinder

Well-Known Member
Disneyland Paris Resort: I still have some hope in this property. Yet it still remains a struggling entity. While things have been improving in a quality stand point, they still have one of the worst theme parks in the chain dragging them down. I'm getting to the point where I want them to announce a Disney California Adventure style Redo of Walt Disney Studios or just sell the Resort to some other party. They have had huge progress in fixing it, but the glaring truth still can't be ignored; Walt Disney Studios is a disaster.
At this point, WDSP might be beyond saving. It's reputation is so bad and Disney hasn't done enough to shore up the park. For the long term health of the resort, tearing down the entire park and building something that can be an equal to Parc Disneyland would be a better investment of capital. You might say, "Star Wars and Marvel will save the park", but those IPs shouldn't be forced hold up a poorly designed/themed park. Give IP like that a blank canvas.
 

Daveeeeed

Well-Known Member
At this point, WDSP might be beyond saving. It's reputation is so bad and Disney hasn't done enough to shore up the park. For the long term health of the resort, tearing down the entire park and building something that can be an equal to Parc Disneyland would be a better investment of capital.
No not at all. Have you even been there? My profile pic says it all, I've been there. It would be a complete waste. The ride lineup is solid, the issue is how it looks. The park could be fine with a DCA type overhaul.

What I think needs to happen to Walt Disney Studios:
-New land like Cars Land, maybe Marvel.
-Convert the area around Crush's Coaster into a Finding Nemo mini-land like Ratatouille.
-Add Toy Story Midway Mania to Toy Story Land.
-New Park name (something simple like Disney Adventure)
-Complete renovation of the park's facades & pathways to bring it up to Disney standards.
-Add a new sit-down dining restaurant.
-Add a d-ticket water ride to bring in crowds.

-Make the center street like BuenaVista Street up to the Tower of Terror to make it a cohesive grand land. Studio 1 can stay, but once you exit the theming has to make sense.
-West side of the park needs to have a more Hollywood Studios look to the filming aspect, from Rock n' Rollercoaster to Lights Motours Action! Again just changing the walkways and exteriors is sufficient.


-The park should be separated into mini-lands.
On the right side: Toy Story Land, Ratatouille Land, Finding Nemo Land.
Down the center: a sort of Buenavista Street Land, with a new completely indoor line to the Backlot Tour that has a great exterior facade.
On the left side:
-Upper: Hollywood of today featuring Rock music/special effects. Idea is that you are in Hollywood as a VIP.
-Lower: Movie genres type of land. This is where the water ride & a restaurant could be.
Up top: 12 Acre Marvel Land with an entrance on the top left and top right side of the park.


This way the center is a gateway to the park's film style. The left is about Hollywood itself, and the technology behind it. The right Disney movies, and the top a Marvel Superhero type Fantasyland.

This park will never be as good as Animal Kingdom, Islands of Adventure and of course not Tokyo Disney Sea, but it can easily be a solid second park. This park needs to have 6.5 million people a year. If they can do that, and have a quality theme park, size does not matter. It still won't be as good as DCA in the same way Hong Kong Disneyland will never be on the scale of the Magic Kingdom; it can have better quality, but not scale, and that is fine as there is not enough demand.

The main issue for the main park is that Disney thought a centralized location is would work, but it doesn't in Europe. People in Europe tend to go more locally for themeparks as they have some nice ones. Obviously not like Disney & Universal, but much better than Six Flags.
 
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the.dreamfinder

Well-Known Member
This park will never be as good as Animal Kingdom, Islands of Adventure and of course not Tokyo Disney Sea, but it can easily be a solid second park. This park needs to have 6.5 million people a year. If they can do that, and have a quality theme park, size does not matter. It still won't be as good as DCA in the same way Hong Kong Disneyland will never be on the scale of the Magic Kingdom; it can have better quality, but not scale, and that is fine as there is not enough demand.
Armchair imagineering aside, this argument fails to acknowledge that each Disney Park, as displayed by classic WDW and the current TDR, should originate from the same high standards, yet be unique on the terms established by each park's thesis. A day at the Magic Kingdom should be just as good as a day at Animal Kingdom even though the parks are different. Your 'solid second park' theory rests on the idea that it would be ok if WDSP never reached for the high stands of Parc Disneyland, the classic Disney standard. The park's current problem stems from this inequity and by your own admission wouldn't be fixed. Guests shouldn't ever have to 'settle' for a second gate.


But let's dive deeper into the park's problems. The park's layout, which is a skeleton of the original Disney-MGM Europe park, serves as a poor foundation for a theme park missing what was supposed to be its heart, an actual working backlot. D-MGM Europe's design, with the working backlot, is in fact superior to what we got in Florida because this park wouldn't have been landlocked by wetlands and World Drive. Once the heart was taken away, and add in some classic Eisner/Pressler era value engineering, WDSP is a cheap park lacking what makes Disney theme parks special, purpose. The suggestions you have made will never fix that core problem. They also point to the high cost of reinvestment into the park to make it somewhat viable. Given WDI's rates, a DCA 2.0 redo of the park could be over $2 billion. At that price, might as well spend an extra billion for a second chance.
 
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Daveeeeed

Well-Known Member
Armchair imagineering aside, this argument fails to acknowledge that each Disney Park, as displayed by classic WDW and the current TDR, should originate from the same high standards, yet be unique on the terms established by each park's thesis. A day at the Magic Kingdom should be just as good as a day at Animal Kingdom even though the parks are different. Your 'solid second park' theory rests on the idea that it would be ok if WDSP never reached for the high stands of Parc Disneyland, the classic Disney standard. The park's current problem stems from this inequity and by your own admission wouldn't be fixed. Guests shouldn't ever have to 'settle' for a second gate.


But let's dive deeper into the park's problems. The park's layout, which is a skeleton of the original Disney-MGM Europe park, serves as a poor foundation for a theme park missing what was supposed to be its heart, an actual working backlot. D-MGM Europe's design, with the working backlot, is in fact superior to what we got in Florida because this park wouldn't be landlocked by wetlands and World Drive. Once the heart was taken away, and add in some classic Eisner/Pressler era value engineering, WDSP is a cheap park lacking what makes Disney theme parks special, purpose. The suggestions you have made will never fix that core problem. They also point to the high cost of reinvestment into the park to make it somewhat viable. Given WDI's rates, a DCA 2.0 redo of the park could be over $2 billion. At that price, might as well spend an extra billion for a second chance.
Right and I know what you are saying, but realistically it would be insanity to throw away hundreds of millions on great attractions like Ratatouille the Tower of Terror etc.
DLP is a park that takes as much time as the MK. Walt Disney Studios can become a full day park it just will never become a you have to spend 2+ days like the castle parks. It's a risky property in Paris as it is, they need to draw people in to the main park and justify a hopper to most people. In Paris there are a ton of locals going. The biggest issue is location in europe. Paris just does not work for a Disney park and that is where the issues lie. The second park is an addition, it is never going to see Hong Kong's peak numbers, but it can get to where it is now, and I don't think a completely new park will change that. They can add a third gate after DLP PARK gets 16M+, but to close WDS for a new park is just silly. They can expand what hey have, and tear down all he terrible things of the park to give it a better layout.
 

Jon81uk

Well-Known Member
I agreee that WDSP has some great rides, shows and attractions, but the studios theming does nothing to show off the good stuff. I would abandon the backlot tour and re-use the area for Cars Land or similar, then refresh all other facades. If the front of the park felt nicer they could do very well.

But the biggest issue for me is instead of going to Paris I'd rather put the money towards going to WDW. If they had built euro Disney in Southern Europe with better weather I'd be much more likely to visit as it would be warm and different from the UK. Instead many brits visit Florida for the better weather and the prospect of visiting ten or more different theme parks rather than two.
 
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