The Next Big Thing for Disney Stock?
Walt Disney Co (NYSE:DIS) stock went downhill since it reported earnings last month, but nothing has fundamentally changed about the company’s outlook. In fact, one of its recently completed projects could cause the next super-spike in Disney’s stock price.
In recent months, sentiment hasn’t really been that great surrounding Disney stock. Even a number of tremendously successful movies could not propel the stock back to last year’s levels. However, all this time, the market seems to be forgetting one of the key moneymakers at Disney—its parks and resorts.
In its most recent fiscal quarter, the parks and resorts segment grew its revenue by four percent year-over-year to $3.9 billion. Operating income from the segment improved 10% year-over-year to $624 million. For quite some time, parks and resorts have been the second-largest revenue contributor to Disney, falling only behind the company’s media networks segment. (Source: “The Walt Disney Company Reports Second Quarter and Six Months Earnings for Fiscal 2016,” Walt Disney Co, May 10, 2016.)
Now, the segment could see some serious additions to its already impressive numbers. The company just opened Shanghai Disney Resort, the first-ever Disney theme park in Mainland China.
Through its cinematic releases, Disney has already built a strong presence in China. Many Chinese consumers are familiar with Disney’s characters. For the Shanghai Disney Resort, the company’s goal was to create something that’s “authentically Disney and distinctly Chinese.” (Source: “Shanghai Disneyland Launches with Disney Characters, Distinctly Chinese Flavor,” CNBC, June 9, 2016.)
Over the years, Disney has opened many theme parks around the world, so why should this one be special?
As they say in real estate, it’s all about location, location, location.
To give you an idea of how great of a location this Disney theme park occupies, here’s a number: 330 million. That’s the amount of people who live within a three-hour drive or train ride from the Shanghai Disney Resort. That’s more than the entire U.S. population!
Also, note that China has a booming middle class with growing disposable income. As the country transitions from export-based growth to a consumer-led economy, Disney stands to win from this 963-acre “storefront.”
Bob Iger, the chief executive officer at Disney, said that the Shanghai Disney Resort is the “biggest step” the company has taken in any overseas market. (Source: “Bob Iger Tells Us About Disney’s $5.5 Billion Bet on China,” CNBC, June 9, 2016.)
“China represents a great market for Walt Disney because our stories are not only known here but they are universal in appeal, they touch people’s hearts all over the world, no matter what country, no matter what culture,” said Iger. “So this is, I think, a great market for Disney and a growth market as well. Obviously the size of the market, the number of people, is another reason, but, and this is an extremely [big] step—or the biggest step, actually—that we’ve ever taken anywhere to grow in a market.” (Source: Ibid.)
In addition to Shanghai Disney Resort, the company’s existing theme parks could also get a boost from the company’s Star Wars theme park expansions. Last December, the company released Star Wars: The Force Awakens. In just 20 days after its release, the latest episode in the series became the highest-grossing film of all time in the U.S.
Earlier this year, Harrison Ford himself (who played Han Solo in the Star Wars movies) revealed some details about what we could expect from the expansions to Disneyland in California and Walt Disney World in Florida. The images suggest that the expansions could include a marketplace, landing bay, some dining establishments, and maybe even the Millennium Falcon.
The Bottom Line on Disney Stock
You might think that with blockbuster films coming out one after another, studio entertainment would be the workhorse at Disney. However, as it turned out, parks and resort brought in nearly twice as much in revenue as studio entertainment. With the opening of Shanghai Disney Resort and the Star Wars theme park expansions, Disney stock could be on the verge of its next rally.