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What Is the Outlook for Disney’s Parks & Resorts Segment?

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Disney’s domestic theme parks

The Walt Disney Company’s (DIS) theme parks and resorts are doing extremely well in the United States. The company continues to add new attractions to its theme parks in the United States. In March this year, Disney announced that it was looking at adding two more cruise ships to its fleet, taking the number to six. However, the company expects that these cruise ships will become operational between 2021 and 2023.

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These are all measures taken by Disney to withstand rising competition from companies such as Comcast (CMCSA) in the theme parks business. At the Guggenheim Securities TMT Symposium in New York in June, Comcast stated that in cities such as Orlando, Florida, Disney has traditionally had a 75% market share, while Comcast’s Universal theme parks have had a 25% market share.

Disney has also introduced three-tier pricing at its US theme parks to increase revenue. The company stated at a MoffettNathanson conference in May that an important component of its domestic theme park success was its focus on adding attractions revolving around its core franchises and brands. Also, the company has been successful in growing its operating margins for its theme parks business by managing its costs well.

In its fiscal 3Q16 earnings call, Disney said that reservations at its US resorts have risen 1% YoY so far in fiscal 4Q16, and that “booked rates are pacing up 2%.” As the above chart indicates, in fiscal 3Q16, Disney’s Parks & Resorts segment saw revenue of $4.4 billion in fiscal 3Q16, a rise of 6% year-over-year (or YoY). This segment had an operating income of $994 million, a rise of 8% YoY.

International theme parks

Disney’s Shanghai Disneyland had a spectacular opening in fiscal 3Q16. Disney expects pre-opening expenses for the Shanghai resort to be around $300 million in fiscal 2016.

Disney is also looking at expanding in Hong Kong (EWH) by adding an Iron Man attraction and constructing a new hotel. Disney also plans to further develop its Tokyo Disneyland and Tokyo DisneySea theme parks in Japan (EWJ). It plans to complete these developments by 2020.

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