Disney’s first 2023 earnings name was jam-packed with information about restructuring, cost-cutting, and the way forward for streaming providers. Unsurprising, since these are matters CEO Bob Iger signaled he’d handle upon returning. However, he additionally expressed optimism about Walt Disney World and Disneyland, briefly outlining growth concepts.
This additionally isn’t a shock, because the Parks & Resorts–extra particularly, Walt Disney World, Disneyland, and Disney Cruise Line–had been as soon as once more a vibrant spot for Disney. The Disney Parks, Experiences and Products (DPEP or Parks & Resorts) phase noticed a 21% improve in income to $8.7 billion throughout the newest quarter, as in comparison with $7.2 billion within the prior-year quarter, and phase working revenue elevated 25% to $3.1 billion.
Removing client merchandise from that whole, the home and worldwide parks accounted for over $7 billion in income, up 27%, and over $2 billion in revenue. Narrowing that additional to only the home parks and the numbers are roughly the identical: $6 billion in income and (nonetheless) over $2 billion in revenue. That means Walt Disney World, Disneyland, and DCL are doing the heavy lifting for the phase.
It’s thus unsurprising that Iger selected to conclude the decision on a constructive word for Walt Disney World and Disneyland followers, addressing the untapped potential of the parks. Even although we added this as a late replace to our authentic earnings name put up, we felt it was value revisiting for many who missed it–and so as to add new particulars and better context.
While discussing the way forward for Disney’s Parks & Resorts, Iger acknowledged that he’s “very, very bullish.” Exciting sentiment, till adopted up with: “Demand for the parks is extraordinary now. We can lean into the demand easily by letting more people in, and by more aggressively pricing.” Suddenly, not so thrilling. More of the Chapek strategy of constantly milking the money cow. But wait, there’s extra.
Iger continued: “We don’t think either would be smart. If we let more people in it’s going to reduce the guest experience, and that is certainly not what we want. In fact, if you look at our results this past holiday season, we actually reduced capacity, improved the guest experience, and were able to maintain profitability.”
This follows an earlier assertion through the name from CFO Christine McCarthy that the corporate intentionally decreased capability through the vacation season by 20% as in comparison with 2019. Those of you who visited Walt Disney World or Disneyland and encountered heavy crowds could not imagine this–because it was nonetheless very busy–however each the wait time knowledge and our on-the-ground expertise on each coasts again it up. An fascinating apart, however that’s not likely the purpose of this put up.
“Lastly, we have learned that when we invest in increasing capacity, with Star Wars: Galaxy’s Edge being a good example of that and Pandora a great example of that, we can grow our business,” Iger continued after additional discussing how Disney would proceed to handle the capability they’ve. (Not excellent news for Annual Passholders who hate the reservation system, however we’ve mentioned time and time once more that reservations for APs are usually not going wherever anytime quickly–if ever.)
Iger indicated that when you take a look at the outcomes when Pandora – The World of Avatar was in-built Disney’s Animal Kingdom, the year-to-year progress numbers by way of the quantity of people that visited had been “stunning.” He went on to deduce that Disney goes to carry Avatar to Disneyland for a similar motive, and that he was investigating different such alternatives. “I talked to Josh D’Amaro about that this morning. Carefully look at all the great franchises of the company, and see where we can invest in them in the parks to increase capacity, while preserving guest satisfaction.”
This conclusion to the decision is the important thing, and there’s so much to unpack, so let’s get began. First, Pandora – The World of Avatar is value as a case research. Across the board, Walt Disney World attendance elevated virtually each single 12 months from 2007 to 2019, so it wasn’t simply progress at DAK.
With that mentioned, Animal Kingdom far outperformed in share phrases, leaping from 9.5 million to 14 million–with virtually all of that coming post-Pandora. If you take a look at the spike within the two years after that land opened, it’s actually exceptional. That one land basically rotated Animal Kingdom. It didn’t simply go from a half day to full day park–it went from one folks weren’t visiting in any respect to a precedence.
Disney’s Hollywood Studios was on an analogous course after the opening of Toy Story Land. If what we witnessed on the bottom within the first 2.5 months of 2020 was any indication, the influence of Star Wars: Galaxy’s Edge (or extra particularly, Star Wars: Rise of the Resistance) would have been comparable. Of course, that didn’t proceed to play out as deliberate, and DHS remains to be hobbled by decreased capability as in comparison with pre-closure. The level is that high-profile park expansions are main drivers of attendance.
What qualifies as an growth is nebulous. In the instances of the Avatar and Star Wars lands, technically one thing was being changed–it wasn’t a “pure” growth. However, these issues (Camp Minnie-Mickey and the Backlot) had been underutilized capability that had virtually no drawing energy. There’s a motive why the Streets of America was the proper spot for the Osborne Lights–and why relocating them would’ve confirmed practically unattainable–the out of the best way space didn’t have something to attract crowds.
This is completely different from reimagining and even constructing a single new attraction. Mission Breakout is broadly seen as a stunning success story for Disney California Adventure, and even we are able to concede that the result’s a enjoyable and better-than-expected attraction. But it took a well-liked attraction and made it extra well-liked. The influence on park attendance was not practically as pronounced.
When trying by way of theme park guests statistics, the identical can most likely be mentioned for Frozen Ever After, Star Tours: The Adventures Continue, and different additions that weren’t expansions. (It’s unattainable to evaluate something added since 2020 as the info is both skewed as a result of capability reductions or not but accessible. It’s my perception that the EPCOT overhaul has moved the needle for that park, however I don’t have corroborating stats.)
While Iger is the one who articulated this angle on the primary earnings name of 2023, it’s hardly a brand new thought. For one factor, Iger was on the helm when Pandora – The World of Avatar, Toy Story Land, and Star Wars: Galaxy’s Edge had been greenlit and opened. He would’ve seen the customer knowledge for not less than the primary two tasks, and already had that growth strategy vindicated.
Years earlier than that, he established the blueprint for such a technique with the overhaul and growth of Disney California Adventure, arguably the most important success story of all. That 2012 transformation, together with New Fantasyland, was seemingly the catalyst for the newest wave of improvement that’s now wrapping up.
Although our focus is Walt Disney World, comparable bulletins got here below Iger for the opposite parks. Hong Kong Disneyland is already double the park it was when it opened, with Arendelle: The World of Frozen being one other blockbuster growth initiated below Iger. Same goes for the Walt Disney Studios Park in Paris, which completely sucked till growth plans had been set in movement below Iger. It nonetheless sucks, nevertheless it’s not off course and could have its personal Arendelle in one other couple years.
Then there’s what Parks Chairman Josh D’Amaro teased at the newest D23 Expo. He was joined on-stage by Imagineer Chris Beatty and Chief Creative Officer of Walt Disney Animation Studios Jennifer Lee to debate early idea explorations. They began with Dinoland USA at Animal Kingdom, and potential growth alternatives together with a Zootopia Metropolis and Moana Mini-Land.
Then they turned to Magic Kingdom, the place it was obvious this was way more ‘blue sky’ in nature. That presentation checked out Magic Kingdom Expansion Possibilities “Beyond Big Thunder” and showcased potential Coco, Encanto & Villains lands. While there was preliminary pleasure amongst followers, that shortly soured. The constructive sentiment gave approach for skepticism about these potential plans, particularly in mild of Disney’s not-so-stellar monitor report in constructing issues that had been “firmly” confirmed at previous D23 Expos.
Back in our D23 autopsy, I introduced my case for being optimistic in regards to the panel and way forward for Parks & Resorts, and studying between the traces regardless of all of this: “Walt Disney World continues to outperform, and investors have begun to take notice of its success. This coupled with Wall Street souring on streaming (at least a bit) means Disney may finally start to bet bigger on its theme park business. Given that, a big slate of announcements at the 2022 D23 Expo was a possibility.”
“From my perspective, that’s almost certainly why we saw the early expansion plans for Animal Kingdom and Magic Kingdom. A realization by the company that Wall Street is increasingly skeptical of the streaming business, but all-in on theme parks. Given that this is a relatively recent development, the company hasn’t had a chance to finalize plans. Still, they want us–and more importantly to them, Wall Street–to know that big investments are on the horizon.”
If you return and skim that article right now or assume again to the D23 Expo in mild of the encompassing circumstances on the time and take into account what has occurred since, I believe that’s even extra believable. Wall Street was already souring on streaming subscriber progress, however that Parks & Resorts panel was earlier than the quarterly earnings name that exposed $1.5 billion in losses on streaming. (As a reminder, financials are reported a few months after their quarters conclude–that means that the D23 Expo fell inside that significantly poor quarter.)
Those outcomes proved to be Chapek’s undoing, setting in movement the return of Bob Iger, the dismantling of Disney Media and Entertainment Distribution, and a promise to be extra accountable with runaway spending on streaming.
Equally as vital, this got here earlier than traders turned vocal in regards to the efficiency of Parks & Resorts. Although he’s referred to as off the proxy battle, one of many cornerstones of Nelson Peltz’s “Restore the Magic” marketing campaign was that the home theme parks had been “over-earning” to subsidize losses elsewhere. He contended that margins had been pushed too far, too quick in a way that was unsustainable. Peltz wished to see extra accountable progress at Disney’s home parks.
He’s not alone. If you’ve learn or listened to analysts following the newest two earnings calls (once more occurring after that D23 Expo), “what about parks?” is a continuing chorus. The sentiment is that Walt Disney World and Disneyland are doing rather well, proving surprisingly resilient, and one of many firm’s few vibrant spots. The message Wall Street is sending is that funding in theme parks is wise and secure, and the suitable plan of action.
Honestly, that is irritating. Disney already discovered this precise lesson after the Great Recession–therefore the final improvement growth. The complete motive Disney targeted on streaming subscriber progress was as a result of that was Wall Street’s key metric for media firm success on the time. Now they’re altering the ‘rules’ mid-game and performing like they simply found the recognition of theme parks. As if the entire colossal growth plans of the final decade occurred by luck or accident. But I digress.
The excellent news is that everybody appears to be on the identical web page. Wall Street is extra bullish about Disney’s theme parks than streaming providers. Bob Iger and Josh D’Amaro need to construct capacity-expanding additions to the parks. Walt Disney World and Disneyland followers are clearly on board. Heck, I believe even Bob Chapek was in favor of this…and we don’t precisely throw round reward for that umbrella aficionado right here!
If everyone seems to be on the identical web page and growth is on the horizon for Walt Disney World and Disneyland, why haven’t we heard official bulletins? Is it only a matter of Imagineering placing the ending touches on plans and idea artwork? This brings us to the unhealthy information…
Earlier within the earnings name, Iger mentioned the corporate’s restructuring and cost-cutting initiatives. To that time, Disney will probably be slicing $5.5 billion in prices, made up of $3 billion from reductions in content material and the remaining $2.5 billion from non-content cuts. As a part of that, the corporate is decreasing its workforce by 7,000.
There are a pair foremost causes for this. The first is the debt Disney took on with the twentieth Century Fox acquisition and in the beginning of the pandemic. The second is streaming losses, which elevated for the quarter by $0.5 billion to $1.1 billion. This is the third consecutive quarter that streaming has racked up over $1 billion in losses.
Note that this isn’t a failure of Disney+ or as a result of unpopularity (fairly the alternative is true). Streaming dropping cash its first a number of years was at all times the plan. Disney+ launched with a ‘growth at all costs’ person acquisition technique to seize market share, which was kicked into greater gear by Chapek till Wall Street modified the metric of success. As earlier than, Disney+ is on a path to profitability, however not till late 2024.
As a results of this, CFO Christine McCarthy indicated that fiscal 2023 capital expenditures at Parks & Resorts will whole proximally $6 billion, which is decrease than the prior steerage of $6.7 billion. Interestingly, this isn’t primarily as a result of decreases in CapEx on the home parks, however relatively, as a result of “timing shifts.”
It’s tough to find out the place Disney Parks & Resorts may save $700 million on account of “timing shifts.” My greatest guesses are delays in Arendelle at Walt Disney Studios Park, Polynesian DVC Tower, and regardless of the heck is occurring with Disney Cruise Line and Lighthouse Point.
Everything else is both too far alongside or crucial (knock on wooden). It’s exhausting to see the EPCOT overhaul paused at this level, however then once more, I’d’ve mentioned the identical factor in Spring 2020. Delaying Tiana’s Bayou Adventure appears equally unlikely, as does suspending different tasks nearing completion. The financial savings is also on CapEx tasks that had been slated to start this fiscal 12 months, however now won’t.
Ultimately, it might sound tough to reconcile Bob Iger’s bullishness on massive growth at Walt Disney World and Disneyland with the aforementioned near-term cost-cutting. As was the case after the odd panel on the D23 Expo, we completely perceive fan skepticism, pessimism, and downright dismissiveness. Actions converse louder than phrases, and it could be exhausting to take at face worth Bob Iger’s declare that he’s “very, very bullish” on constructing new capability when he’s slicing budgets. That’s truthful.
However, it’s fairly straightforward to reconcile. Just take a look at the timeline for Pandora – World of Avatar, or any of the opposite aforementioned new lands. Pandora is essentially the most excessive instance, being introduced years earlier than development ever started. Other additions have had equally sluggish turnaround instances. I most likely don’t must belabor this level…you’ve all seen how lengthy it took Disney to construct TRON Lightcycle Run. My guess is that the following improvement cycle will play out on this similar vogue. Suffice to say, no matter is introduced this 12 months received’t influence CapEx numbers till 2024 or 2025.
As for the timing of bulletins, they might happen each time, however one entry on the calendar stands out to me: Destination D23 will probably be held September 8–10, 2023 in Contemporary Resort at Walt Disney World. This occasion celebrates Disney100, and can be the proper alternative for large information. And not simply due to its location or the truth that it’s the one main occasion scheduled.
Timing-wise, Destination D23 is close to the tip of the present fiscal 12 months, and begin of the following one–the 12 months by which Disney+ is (supposedly) going to realize profitability. It’s additionally close to the anniversary of Walt Disney World and EPCOT’s opening (October 1), which isn’t significantly significant by itself given the dearth of milestone, however can be a logical date for the Florida parks to start out celebrating 100 Years of Wonder.
Given all of that, my guess is that we get a sluggish tease of reports later this summer season in regards to the new nighttime spectacular at EPCOT and that Walt Disney World will have fun the corporate’s a hundredth Anniversary beginning this fall. Then, throughout Destination D23, specifics are shared (drones! decorations! dreamlights! merchandise! extra!) about Disney100 at Walt Disney World, which can function a bridge to the opening of Tiana’s Bayou Adventure (count on to additionally see video of that–hopefully of spectacular new Audio Animatronics that put some criticism to relaxation).
Most considerably, I’d count on an official announcement of Animal Kingdom growth, and presumably one other imprecise tease of one thing coming Beyond Big Thunder in Magic Kingdom. Disneyland is extra of a wildcard, with Fantasyland or Tomorrowland growth being potentialities (in addition to the beforehand introduced Marvel E-Ticket and Avatar “Experience”). Don’t get too excited but, because the timeline for the primary new lands opening is probably going 4+ years out, however I firmly imagine that they’re coming to each ‘kingdoms’ in Walt Disney World.
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YOUR THOUGHTS
What is your response to Bob Iger saying he’s “very, very bullish” about park growth at Walt Disney World and Disneyland? Think this may be reconciled with the near-term cost-cutting, or would you relatively not construct anticipation for one thing a number of years out, or which will by no means come to fruition? What potential plans have you ever most and least excited? Anything you’re hoping does not find yourself coming to fruition? Do you agree or disagree with our assessments? Any questions we will help you reply? Hearing your suggestions–even once you disagree with us–is each fascinating to us and useful to different readers, so please share your ideas under within the feedback!