The next wave of Disney theme park expansion within the U.S. is predicted to are available in California, not Florida. It's a tale of two coasts, because the entertainment giant looks to speculate $60 billion in its crown jewel parks and cruises over the following decade to deliver more value to shareholders. In California, the Anaheim City Council — where the Disneyland resort is positioned — last month approved an organization plan to expand development of its 490-acre Southern California campus. The final vote on May 7, which coincided with the discharge of Disney's latest earnings, paved the way in which for the biggest expansion there since sister park California Adventure opened greater than 20 years ago. The decision commits Disney to investing at the very least $1.9 billion in theme parks, lodging, entertainment, shopping and restaurants over 10 years. In Florida, Disney has had a harder time navigating the political landscape — resulting in tie-ins with the event of Disney World. It's only been a matter of months since an almost two-year legal battle between the corporate and Republican Florida Gov. Ron DeSantis led to a settlement in March. The conflict began in 2022 after Disney opposed the state's so-called “Don't Say Gay” law, prompting DeSantis and the state's Republican lawmakers to strip Disney of its decades-old authority to control the county. Another headwind for Disney in Florida is aggressive park competition from NBCUniversal, which is owned by CNBC parent company Comcast. What's at stake There's lots at stake for Disney as the corporate commits to massive investments in parks at a time when CEO Bob Iger is under increasing pressure to get a handle on the corporate's disparate businesses, which include movies, TV, sports, merchandising and streaming. Since returning to the manager suite in late 2022, Iger has aggressively cut costs and restructured operations. But the stock continues to falter. Fresh off a win that kept activist investor Nelson Peltz off the board, Iger must now execute on his vision and restore Disney's shine on Wall Street. “Disney is smart to continue investing in its Parks & Experiences business because that's where the majority of its profits come from,” said Jeff Marks, director of portfolio evaluation at Investing Club. In the second quarter of fiscal 2024, Disney's Parks & Experience division, which incorporates theme parks, resorts, cruises, hotels and consumer products, grew revenue nearly 10% to $8.93 billion and operating income greater than 12% to $2.29 billion. About 70% of the corporate's EBITDA (earnings before interest, taxes, depreciation and amortization) is generated by parks, meaning the speed of EBITDA growth on the parks side is quicker than the remaining of the business. Disney's massive, multi-year investment commitment to parks and other experiences shall be used to expand theme parks at home and abroad with recent attractions and cruise line and hotel capability — all of which should result in more revenue growth and improved margins over time. Disney has two cruise ships within the pipeline — the Disney Treasure, set to set sail in December 2024, and the Disney Destiny in 2025. To proceed to grow revenue from the parks and other experiences, “there are only two things you can do,” said Bernstein analyst Laurent Yoon. “Have more visitors and expand capacity.” Yoon estimates the parks business can grow mid- to high-single-digit percentages within the near term, with EBITDA margins rising to the mid-30s to mid-40s. Return on capital should remain within the high teens to low 20s, which makes for “a pretty phenomenal business,” he said. Sunshine State snatches the win Wall Street is bullish on Disney's parks business. But along with the frosty relationship with DeSantis and Florida officials over future development, Universal is ratcheting up the pressure in Orlando with its upcoming Epic Universe theme park, set to open in 2025. Epic can have five themed lands on 750 acres of land. “There are good reasons to be cautious about Disney's near-term revenue growth after Epic Orlando opens,” said Peter Supino, an analyst at Wolfe Research. He identified that in 2010, when Universal opened Harry Potter World in Orlando, attendance at Disney World was declining. After an initial boost when Epic opened, Supino expects things to “evolve into a duopoly market in Orlando.” “Comcast's involvement and dependence in the theme park space will expand dramatically,” MoffettNathanson said. “Epic Universal signals a new phase in the theme park wars.” While MoffettNathanson called Disney the “undisputed leader” in theme parks, he added that “one cannot help but conclude that Epic is bound to capture at least some of the demand… that might otherwise have ended up at Disney World.” The analysts said Disney and Comcast are “increasingly competing for every dollar spent on a theme park trip.” To make matters much more tricky for Disney, “there is a little [political] friction and that's not likely to go away anytime soon,” Yoon said. According to the Bernstein analyst, that signifies that whatever Disney desires to do in Florida by way of theme park expansion, it could face some challenges. At the identical time, Yoon said that that is ultimately a mutually useful partnership where “Florida needs Disney's revenue and Disney needs Florida,” suggesting that the state government will likely have to offer in to support Disney if it wants more tax revenue for the state. Expansion within the Golden State Although Comcast and Disney parks also compete in California, the latter has a bigger foothold there that can only get greater. “In California, it's easier to work with the government,” Yoon said, adding that the Anaheim City Council will likely proceed to approve Disney's development proposals because it could be financially useful to the town's local economy. Yoon expects a good portion, probably half of the $60 billion, shall be spent on expanding somewhat than maintaining Disney's theme parks, with a big portion earmarked for California. According to Yoon, Disney is the “main attraction” in Anaheim, which subsequently relies on revenue from the corporate's parks. The structure in Anaheim is different than Orlando, where there are several theme parks that the Florida city and surrounding areas depend on along with Disney. Disney and Universal's parks within the Orlando area are about 10 miles apart. Disney's Anaheim parks are about 40 miles from Universal Studios Hollywood. Although smaller in California, Universal Studios Hollywood isn't standing still. The park confirmed plans last month to construct a high-speed outdoor roller coaster called Fast & Furious: Hollywood Drift. The attraction is scheduled to open in 2026. Where the Club Stands While the facility of Disney's parks is welcome news for shareholders, Wall Street analysts and the club are also heavily focused on streaming. We need to see management proceed to make progress toward streaming profitability and make progress on cost cutting and other items on Iger's turnaround checklist. As discussed last week on the May monthly meeting, Jim Cramer said he would consider buying more Disney shares for the portfolio should the value fall below $100. (Jim Cramer's Charitable Trust is long DIS. A full list of stocks may be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. After sending a trade alert, Jim waits 45 minutes before buying or selling a stock from his Charitable Trust's portfolio. If Jim has discussed a stock on television, he’ll wait 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION DESCRIBED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS OR IS CREATED BY RECEIVING INFORMATION RELATED TO THE INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
The next wave of Disney In the USA, California somewhat than Florida is the popular location for theme park expansion.
It's a tale of two coasts: The entertainment giant plans to speculate $60 billion in its crown jewel parks and cruises over the following decade to deliver greater value to its shareholders.
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