In what's become an annual tradition, Walt Disney (DIS 0.82%) has raised prices at its Walt Disney World theme park once again. Peak tickets to the Magic Kingdom now cost adults $129, up $5 from the prior year. Prices for the lowest-cost "value" ticket also went up $2 to $109. Passes have grown more expensive on some level every February since 2014, including the introduction of the tiered-pricing model, according to data compiled by AllEars.
That $129 fee is a far cry from the general admission price charged when the park opened. Those in line to visit the Magic Kingdom in October 1971, when the No. 1 song on the Billboard charts was "Maggie May" by Rod Stewart, would have paid the princely sum of $3.50, tax included, to be one of its first guests. Even adjusted for inflation, those visitors paid just over $21 for entry.
Disney's parks and resorts deserve more respect
Those who are bearish on Walt Disney tend to focus on its largest division -- media networks -- and the fact that operating income has fallen in that division in each of the previous two years.
Meanwhile, bullish investors tend to focus on the strong performance from the company's movie studio, which has increased operating income 37% per year from fiscal 2013 to 2017. Overlooked in the investment discussion is the company's parks and resorts division, which has consistently performed with little fanfare. As the chart below shows, Disney's parks and resorts has posted growth rates from the high-single digits to 20% over the last four years:
Data Source: Walt Disney 10-K. Chart by author. Figures in millions of dollars.
Some people don't realize the parks and resorts business is the second-largest segment by operating income behind media networks. And unlike operating income from the Disney film studio, the business model of parks and resorts tends to be more consistent. For example, although studio entertainment has posted amazing growth rates over the prior four years, the division had a 13% year-over-year decrease in operating income last year, while parks and resorts posted steady year-over-year growth during that same period.
Disney is why you invest
In the short run, stocks can be volatile and risky. However, in the long run, they tend to be one of the best asset classes, as great businesses can control costs and outperform inflation, the silent killer of wealth. Perhaps there's no more tangible example than ticket prices for Walt Disney's Magic Kingdom.
From the numbers above, the company was able to increase ticket prices 3,586% -- approximately 8% per year -- over a period of nearly five decades. According to data from the Bureau of Labor Statistics, inflation was 503% during this period, or approximately 3.5% per year. That means Disney has been able to increase ticket prices at more than double the annual rate of inflation.
Of course, Disney wasn't able to accomplish this by resting on its laurels. The company has invested billions in its parks and resorts and poured billions more into characters and brands that have made their way into park exhibits, rides, and shows. Investors should look for the company to continue to post strong returns from this overlooked division.
