As talk about the possibility of a recession in the United States continues, one Morgan Stanley analyst says that not only will the theme park segment of the company lead the way, but that it could actually grow – even in a moderate recession.
Morgan Stanley analyst Benjamin Swinburne issued a report that lowered the stock target for Disney to $125 but noted that the parks division looks strong and that Disney’s investments in yield management could pay off. All of Disney’s theme parks are now open, both domestic and internationally with the reopening of Shanghai Disneyland on June 30th.
We think pent-up demand is clearly playing a role in the current Parks strength, which along with Disney’s yield management investments may allow the business to grow even in a modest recession.
In Disney’s most recent quarterly report, income from the theme parks division nearly surpassed income from the entertainment division, which saw a 30% drop in income versus the same quarter in 2021.
Swinburne even noted that the parks division is doing great on the heels of the COVID-19 pandemic:
Over many economic cycles, the Parks business has always come back after a downturn. In fact, the pandemic recession and recovery has seen the US Parks revenues grow at a +4-5% CAGR from FY19 to FY22, 3-4x faster than the prior cycle.
That optimism was shared by Disney CEO Bob Chapek when discussing the latest quarter results, noting guest spending at the theme parks is up more than 40% over pre-pandemic figures. Chapek went on to hint at their Disney Park Pass yield management system as being a big factor in that success, noting that a favorable guest mix and Disney Genie+ were revenue drivers for the parks.
Looking forward, Chapek notes that there doesn’t appear to be a slowing in theme park visitation, even when he was asked directly about a slowing in the economy and inflation.
We continue to see really strong demand, and we’re encouraged by the trends that we’re seeing, particularly as we’re going to get some improvements to international visitation. But we’re controlling our attendance, as Christine mentioned in her comments, using our reservation system to optimize the guest experience. But that domestic yield strategy, and we’re also seeing it in Paris, is really exceeding our expectations.
If you remember, last quarter, we mentioned that we had some high hopes for it, but we were seeing well above what we had anticipated. Well, I’m happy to say that in Q2 we’re even, as you say, we’re lapping those numbers again even higher.
So we’re very, very encouraged by the continuation of the trends that we’re seeing in terms of the number of people, for example, that sign-up for Genie+, plus the willingness to come to our parks with our balanced reservation system, which really helps us sort of manage our price per day, if you will.
So that domestic yield strategy has really structurally allowed us to increase that per-capita spending meaningfully without having to rely solely on raising ticket prices, and we don’t see any end in sight for that
As always, keep checking back with us here at BlogMickey.com as we continue to bring you the latest news, photos, and info from around the Disney Parks!
“Optimize the guest experience”? Really, Bob? Is that really what you think the permanent reservation layer and charging for line tools that used to be free are doing? I predict there will be fewer repeat visitors in this new “yield management” regime.