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Disney’s stock price recently crashed below $100 (Joe Burbank/Orlando Sentinel/Tribune News Service … [+] via Getty Images)
TNS Disney’s stock should be on a roll right now. Last month it signed a deal with the local government in Orlando paving the way for it to build a fifth theme park at Walt Disney World as part of a $60 billion investment plan. Instead of having a magic touch on its stock price, it fell below $100 for the first time since February. There is good reason for this. Theme parks are the engine behind Disney’s profits. Its six resorts are grouped under its Experiences division which accounted for the majority of its $12.9 billion operating income last year. It was far from a flash in the pan as Disney’s latest results show that over the three months to the end of March this year Experiences generated $2.3 billion of operating income which was almost three times more than the amount made by either of its other divisions of sports and entertainment. It stands in stark contrast to the Disney+ streaming platform which has burned up more than $11 billion of operating losses since it was launched in 2019 and isn’t even forecast to make a profit until the end of this year.
In an attempt to capitalize on the success of its theme parks, Disney announced in September 2023 that it would invest $60 billion in its Experiences division over the next decade. It was widely reported that this would all be directed at theme parks but close reading of the filings reveals that they will only get half of the total with the difference spent on Disney’s cruise line as well as maintenance and technology upgrades. Nevertheless, the $30 billion investment in its theme parks is still around 60 times the sum spent on Disneyland Paris last year, as we revealed, so it is far from a Mickey Mouse amount. Seemingly, against expectations it cast a dark spell on Disney’s stock price.
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When the investment was announced on September 19 last year Disney’s stock closed down 3.6% at $81.94 and was one of the worst performers in the blue-chip Dow. It wasn’t a one-off. In the middle of June Disney revealed where the bulk of the spending would be going when it signed a new development agreement with the board of the Central Florida Tourism Oversight District which controls its site in Orlando. Under the terms of the deal Disney is planning up to $17 billion in development over the next 10 to 20 years, including the possibility of a fifth theme park and expansions at its Magic Kingdom and Animal Kingdom outposts.
It is Disney’s answer to heavy expansion in Orlando by its arch-rival Universal Studios. Universal already owns two theme parks in Orlando and is building a third one, called Epic Universe, which is set to open next year. Reported to cost at least $1 billion, the 750-acre site will be Universal’s biggest-ever single investment in a theme park and will become the media giant’s largest outpost in the United States. Epic Universe will be home to 50 attractions as well as shops, restaurants and three surrounding hotels. There may well be more to come. Disney is looking to counter Universal’s Epic Universe with a fifth Florida park Universal Studios
The doors of Epic Universe haven’t even swung open yet but Universal has already got the green light to expand it. On June 7 the Orange County Development Review Committee approved a plan to expand Universal’s development area to more than 2,000 acres making Disney’s development agreement all the more important. Despite this, when Disney’s $17 billion investment was announced on June 12, its stock closed 0.1% down at $100.80. Two days later it dipped below $100 for the first time in four months and then nudged back over that threshold before crashing back down at the end of last week. It closed at $99.29 which is a staggering 49.6% off its March 2021 peak and it could take more than the wave of a magic wand to get it back there.
On the face of it, it may seem hard to understand why Disney’s investment in its most profitable division has not been met with approval from stockholders. However, on closer inspection it soon becomes clear why it’s not necessarily a dream ticket. Developing top-flight theme park attractions
