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Disney’s announcement that it will spend $60 billion on its resorts, cruise ships, and hotels over the next decade is more than just a revelation of its investment strategy.
Disney's Expanding Empire
Disney's investment will focus on Disney Parks, Experiences, and its Products (DPEP) unit, a sector that triples the profits of its content counterpart, Disney Media and Entertainment Distribution (DMED).
Generating approximately $30 billion annually, this unit has displayed unwavering performance, excluding the pandemic years. With six global parks in operation 24/7 and hosting 100 million guests annually, Disney's physical presence is colossal. Additionally, its five cruise liners act as mobile theme parks, strategically positioned to absorb excess demand.
Despite such expansive operations, a staggering 90% of the 700 million global Disney aficionados have never stepped foot in these parks. This statistic alone justifies the company's aggressive investment strategy.
Wall Street's Perspective
The recent investor summit at Walt Disney World Resort in Orlando brought Wall Street representatives under one roof, placing the spotlight on the DPEP unit. While much chatter in the corporate corridors has been about Disney's future moves with Hulu or a potential ABC sale, the summit's central theme revolves around the DPEP's post-pandemic trajectory, new attractions, and growth forecasts.
TD Cowen analyst, Doug Creutz, aptly encapsulated the sentiment stating, “It’s a big investment, but it’s also already a big business." The optimism is rooted in the historical ROI, the vast tracts of undeveloped land within the park territories, and the potential of expanding cruise and vacation club experiences.
However, not all forecasts were sunny. Jessica Reif Ehrlich from Bank of America warned that actualizing the outcomes from Iger's priorities might be a long game. She also highlighted the post-pandemic recovery of Disney theme parks, noting their financial strength over the last decade and the vast potential for further growth.
Wells Fargo's Steven Cahall echoed the sentiment, emphasizing that while the parks and cruises segment remains promising, Disney's real untapped potential lies in the direct-to-consumer streaming and content sector.
Benjamin Swinburne of Morgan Stanley addressed the DPEP's $60 billion capital outlay, underscoring its funding through the parks business. His analysis projected the parks and experiences sector to account for 75% of Disney's 2023 segment operating income.
Guggenheim's Michael Morris spotlighted CEO Bob Iger's emphasis on transitioning from structural adjustments to growth, with potential land availability equating to seven Disneyland parks.
Conclusion
Disney’s $60 billion venture isn’t just a business strategy; it’s a testament to its unwavering confidence in its parks and experiences sector. While market experts juggle various opinions, from bullish forecasts to cautious optimism, one thing is clear - Disney is poised for growth. Whether this ambitious stride will translate to the expected ROI remains to be seen, but it undoubtedly solidifies Disney's position as an entertainment titan.
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