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Disney's New "Star Wars" Land Could Supercharge an Already Dominant Business

By Danny Vena – Updated May 29, 2019 at 6:24AM

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The billion-dollar theme park addition focusing on a fan-favorite franchise launches Friday in California.

There's little doubt that for Disney (DIS -1.83%), the theme park business has become a key component of the company's recent growth -- and it's no wonder. The House of Mouse boasted the four largest parks in the world by attendance in 2018, with Walt Disney World in Orlando, Florida, and Disneyland in Anaheim, California, leading the charge. 

Star Wars enthusiasts are among the most fervent in movie history, and Disney plans to capitalize on that fanaticism with the opening of its Star Wars: Galaxy's Edge attractions. This multiyear undertaking is finally set to debut at Disneyland on Friday and at Disney World's Hollywood Studios on Aug. 29, with legions of fans descending on the parks to experience the new attractions.

Let's look at the recent performance of Disney's theme park segment, and how the new Stars Wars sections are set to rev up an already lucrative business.

The fictional village of Batuu from Star Wars: Galaxy's Edge attraction.

The new Star Wars land will boost Disney's park revenue. Image source: Disney.

The happiest financials on earth

Over the past several years, Disney's theme park segment has generated impressive growth through a combination of higher attendance, annual ticket price hikes, more occupied room nights, and more robust spending from guests once they're in the park.

We don't have to take Disney's word for it. The parks attracted more than 157 million attendees worldwide in 2018, up 5% year over year, according to the 2018 Global Attractions Attendance report. 

This trend continues, and was on full display in Disney's recent earnings report. For the first six months of fiscal 2019, the recently renamed parks, experiences, and products segment grew revenue by 5% year over year to nearly $13 billion, overcoming the timing of the Easter holiday (which fell in the third quarter this year, versus the second quarter last year). 

Even more impressive is the operating income generated by the business unit: $3.6 billion, up 12% compared with the same period last year. Disney succeeded in expanding the operating income margins for the segment to 28% of revenue, up from 26% for the first half of 2018 -- an impressive feat for an already lucrative business.

To a galaxy far, far away

Adding Star Wars: Galaxy's Edge to the mix will likely take this performance to the next level.

Disney is expecting sellout crowds for the several weeks -- and months -- after the new Star Wars attractions open. Getting into the new area at Disneyland anytime between May 31 and June 23 requires a reservation, but the free passes were all claimed within two hours of being released early this month. The only exception: Anyone staying at a Disney resort will be comped one reservation to Galaxy's Edge for each registered guest of the hotel (with a paid park admission).

One of the key demographics that Disney is hoping to attract with its Star Wars-themed rides and exhibits are fans of the original movie, who are now older and more affluent than the typical Disney visitor. Disney doesn't provide data about its guests, but of the 24 million people who visited the City of Anaheim last year, 47% of them earned more than $100,000 annually, according to Bloomberg, and more than half came without children in tow. Guests with that type of disposable income are exactly the folks Disney wants.

Custom Lightsabers.

Guests can build custom Lightsabers at the new Galaxy's Edge area. Image source: Disney.

With great investment comes great rewards?

In addition to the highly anticipated flagship ride -- Millennium Falcon: Smuggler's Run -- visitors will be able to participate in a host of immersive experiences and can buy all sorts of new Star Wars-themed merchandise. Guests of the planet Batuu, home to the Black Spire Outpost, will be treated to a variety of Star Wars-themed specialty beverages at Oga's Cantina, intergalactic treats at Docking Bay 7 Cargo and Food, and green and blue milk at the Milk Stand. The more adventurous guests can custom-build their own Lightsaber. 

Just the 14-acre expansion in Anaheim reportedly cost about $1 billion (with another $1 billion spent on the Florida expansion), but Disney clearly believes it will be able to recoup its investment and more. While the company was already generating impressive growth from its theme parks, revenue from this new venture will take a shortcut to Disney's bottom line quicker than Hans Solo's infamous Kessel Run.

Danny Vena owns shares of Walt Disney and has the following options: long January 2021 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.

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