$20 Says These Price Hikes Won't Hurt Disney Stock

If you were planning on taking a trip to any one of Disney's (NYSE: DIS  ) resorts this summer, prepare to shell out a bit more for the privilege: Earlier this week, Disney raised the prices for a variety of its theme parks, with increases ranging from 5% to nearly 10%.

Disney stock, sleeping beauty castle

Disney's Sleeping Beauty Castle. Source: Wikimedia Commons.

Predictably, consumers and media outlets alike have cried out in protest, wondering how Disney can get away with such a blatant nickel-and-dime approach.

That raises the question for investors: Will this price hike negatively affect Disney stock?

It's only twenty bucks
An adult day-pass to Disneyland or California Adventure, for example, will now cost you five bucks more at a whopping $92. For children ages 3 to 9, a day-pass also increased $5 to $86. Disney also implemented similar price increases for Disney World as well as for its much more expensive "premier" and annual passports, and even jacked up the price of parking passes by $1 to $16.

But let's be honest here. While this means a typical family of four like my own (with two kids and two adults) must now fork out another $20 just to walk through the gates at Disneyland, does anyone really believe a single Andrew Jackson will weaken our resolve to give our kids that experience?

After all, what's another twenty bucks when most people have already resigned themselves to the fact they'll likely be spending hundreds, if not thousands, of dollars on their Disney-enabled vacations?

I'm (still) going to Disneyland!
What's more, Disney has predictably raised admission prices annually in the same fashion for more than a decade, but that didn't stop Disney stock from hitting an all-time high last month, thanks largely to strong theme park attendance, which drove a 73% year-over-year operating income gain for the segment.

In addition, as fellow fool Rick Munarriz pointed out, Disney is taking a little less heat this year thanks to the fact that both Comcast's (NASDAQ: CMCSK  ) Universal Orlando and SeaWorld  (NYSE: SEAS  )  only just finished raising prices for their own respective Florida parks.

The bigger picture
But while the Universal and SeaWorld parks may very well enjoy a similar level of consumer interest as Disney's attractions, it's hard to beat Disney's breadth and overall potential from a broader investment standpoint.

SeaWorld, for its part, currently trades at a rich 38 times last year's earnings. That's a significant premium to the price for either Disney stock or Comcast, which trade with much more reasonable price-to-earnings ratios of 19.1 and 16.4, respectively. Additionally, while SeaWorld does operate 11 U.S. theme parks, which afford it the ability to support merchandising opportunities and a relatively young Media Enterprises segment, the freshly IPO'd company certainly can't boast the same widely diversified operations employed by entertainment giants like Disney and Comcast.

To be sure, Disney and Comcast each operate their own enormous cable television network businesses as well -- but those segments will continue to face increasingly intense competition as streaming competitors like Netflix and Amazon Prime plan to up the ante with more of their own original programming in the coming years.

That said, keep in mind that Comcast recently took home the unwanted honor of being voted the third-worst consumer-facing company in America, as told by the folks at Consumerist.com.

Disney, on the other hand, has been delighting consumers thanks to its massive library of characters from Disney Studios, Marvel Entertainment, Pixar, and, thanks to its latest acquisition, Lucasfilm. Once Disney is done at the box office, it can translate that success to its television networks and to merchandising with its Consumer Products division, the latter of which grew income last quarter by 35% year over year.

Finally, remember that Disney can also sell its merchandise at -- you guessed it -- its multiple theme parks, the admission for which those millions upon millions of excited consumers should have no qualms paying more for.

In the end, that's why I remain convinced Disney stock should have no problems continuing to set new record highs for the foreseeable future.

Should you invest in the House of Mouse?
Disney amusement parks around the world hosted more than 121 million guests in 2011. But from its vast catalog of characters to its monster collection of media networks, much of Disney's allure for investors lies in its diversity. The Motley Fool's premium research report lays out the case for investing in Disney today, including the key items investors must watch as well as the opportunities and threats the company faces going forward. So don't miss out -- simply click here now to claim your copy today.


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  • Report this Comment On June 08, 2013, at 10:06 AM, esxokm wrote:

    As an investor, I love it when Disney raises its prices. In fact, I think prices could go higher. I hope everything the company sells in the park went up a little, too. Disney's brand power, like you say, is going to carry the day.

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