Disney’s Parks and Resorts: Shanghai Disneyland’s Capex Rising

The Walt Disney Company’s (DIS) Parks and Resorts segment had the best quarter in fiscal 3Q15 in terms of revenues and operating income. Disney owns theme parks and resorts in California, Florida, and Hawaii. The company has ownership interests in its theme parks and resorts in Paris (EWQ), Hong Kong (EWH), and Shanghai (FXI). Disney also owns Disney Vacation Club, Disney Cruise Line, and Adventures by Disney.

As the above graph indicates, Disney’s Parks and Resorts segment had revenues of $4.1 billion in fiscal 3Q15, rising 4% over fiscal 3Q14. It had an operating income of $922 million, rising 9% over the same quarter last year.

Disney’s Parks and Resorts segment had a 7% growth in revenues in the United States, with revenues of $3.5 billion in fiscal 3Q15. This is largely due to increased attendance at Disney’s theme parks and a 3% higher average guest spending. Revenues at the company’s international parks and resorts fell by 13% to $602 million in fiscal 3Q15, largely due to foreign exchange currency fluctuations.

Disney stated in its earnings call that around 13 million people to date have used its MagicBands. Disney introduced them earlier this year at Disney World. MagicBands are radio-frequency-equipped wristbands that help guests gain FastPass+ access to various theme park attractions, make purchases, and open their hotel room doors.

This innovation has given Disney’s theme parks an edge over its competitors like Comcast’s (CMCSA) Universal Theme Parks and Six Flags Entertainment (SIX). Quicker MagicBand access to the parks has also driven up attendance and guest spending at Disney’s theme parks. Disney saw per capita guest spending in US parks rise by 2% in fiscal 3Q15.

Currently, Disney is incurring significant pre-opening expenses for its Disneyland in Shanghai (FXI), which will be unveiled in spring next year. Disney’s international arm of the Parks and Resorts segment had a cash outflow of ~$1.6 billion in the first nine months of fiscal 2015. This is a steep 56% rise from $1 billion in the first nine months of fiscal 14. Disney expects these costs to rise for the next few quarters until the opening of the resort. However, Disney expects this resort to have a positive impact on earnings in the future.

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