Disney’s (DIS) parks business has historically made up the bulk of the entertainment giant’s profits, bringing in about 36% of the company’s overall revenue in the latest quarter. But recent signs of an economic slowdown have raised concerns that theme parks are losing their appeal.
In Disney’s latest financial results, it reported a 6% year-over-year decline in domestic operating profit and cited “moderate consumer demand” toward the end of the second quarter, after reporting weakness in its parks division, which had previously been strong. I ruined the book. . Executives warned that this “moderation” could continue “for the next few quarters”.
“I’m sure consumers are behaving in a certain way — I wouldn’t necessarily say it’s recessionary — but they’re being a little more careful with their pocket money,” said Hugh, Disney’s CFO. Johnston previously told Yahoo Finance.
Wall Street analysts are debating whether this economic slowdown is a temporary blip as consumers cope with high inflation, or a sign of a larger trend with recent price increases across the parks. .
“What I’m concerned about, as prices have gotten a little out of control, is whether it’s a long-term problem or an economically tied short-term problem,” Morningstar analyst Matthew Dolgin said in an interview. Is this a serious problem?” he said in an interview. “I don’t know how much of a natural cycle this is, or if they pushed it a little too far with their pricing, but my biggest concern is not their investment in the business. , there.”
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To understand how Disney ended up in this position, it’s important to look back several years at the post-pandemic travel boom that boosted the parks’ year-over-year growth. “It looked like there was a macroeconomic bump, but everything was aligning for things to get really good,” Dolgin said.
But nothing lasts forever. And that might not be such a bad thing.
“It would not be surprising, first of all, that things would recede a little bit from there, and secondly, I don’t think it’s concerning in any way,” Dolgin said.
He said year-over-year growth is likely to continue to slow as customer funds shift to other forms of entertainment. However, he says business remains strong.
Disney’s big bet
Billion dollar investments in theme parks: Magic Kingdom Walt Disney World in Orlando; (Reuters/Octavio Jones) (Reuters/Reuters)
Last year, Disney announced plans to invest $60 billion over the next 10 years in its theme park business. The company recently revealed that some of these investments include four new cruise ships and multiple new “lands” and global theme park rides.
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Disney is also getting into virtual worlds with its first partnership with Fortnite’s parent company, Epic Games.
“I think they have a lot of opportunity to really grow with expansion,” Dolgin said.
Third Bridge analyst Jamie Lumley agreed, calling the expansion a way for Disney to outpace competitors like Comcast Corp.’s Universal (CMCSA) as prices rise and customers cut back on spending. Classified.
“Because Disney raises park prices every year, it’s definitely competing with other potentially cheaper uses for people’s leisure money,” he noted. “Building these bigger, grander, more immersive experiences is a way to better justify the cost.”
He added: “This is a business they’re betting on, and it could definitely be a game-changer.”
Meanwhile, all eyes are on Josh D’Amaro, the current chairman of the Parks and Experiences division. As CEO Bob Iger’s successor, he’s betting big on ensuring the vitality of the park’s ecosystem.
In a presentation at HubSpot’s annual inbound conference in Boston last week, D’Amaro talked about the magnitude of Disney’s theme park investments and emphasized the park’s place in Disney’s overall vision. did.
Although he did not reveal any new announcements, he mentioned six pillars that govern the Disney mindset: emotional connection, innovation, authenticity, attention to detail, courage, and limitless thinking.
“We are in a constant pursuit of perfection,” he said at the time.
However, the race to perfection has its challenges. Not only has demand fallen from all-time highs as customers grow weary of continued price hikes, but recent political battles have also cast a negative shadow on the company, which bills itself as “The Happiest Place on Earth.”
The stock is down about 30% from five years ago and is currently trading near the low end of its 52-week range.
Are CEOs in a bind? Josh D’Amaro, Chairman of Disney Parks & Experiences, speaks at the annual Inbound Conference.
Mr. D’Amaro, a Disney veteran, joined the company in 1998 in a position at the Disneyland Resort. He took the helm of the parks and experiences division in 2020 and has since navigated a tumultuous period, including a high-profile feud with Florida Gov. Ron DeSantis and a pandemic that completely shut down parks operations. Ta.
However, the company is more focused on mitigating losses in its streaming division, and reported first-quarter streaming profits last month. This was a big change after multiple quarters of heavy losses.
For that reason, Lumley believes D’Amaro likely won’t replace Iger. Instead, he believes the next successor will likely be Disney Entertainment co-chairman Dana Walden, who currently oversees Disney’s streaming and television studios.
“As important as Parks is, whoever takes over as CEO after Bob Iger will change how Hollywood works, how talent relations work, how content strategy works,” he said. “Having a deep understanding of what needs to be done is very important,” he said.
“Josh D’Amaro has definitely done a lot of good things in terms of running Parkside, but ultimately there may be other factors when considering who the next CEO will be.”
But before Mr. Iger steps down as an executive, one thing is clear. That means the park’s multibillion-dollar gamble must pay off.
Alexandra is a senior reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 Email alexandra.canal@yahoofinance.com.
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