You're not likely to associate the word positive with a segment generating a $1.96 billion operating loss, but it is the way that Walt Disney (NYSE:DIS) is ultimately summing up the performance of its parks, experience, and products subsidiary in its latest quarter.
Disney mentioned its iconic theme parks cranking out a "net positive contribution" or "positive net contribution" seven times in Monday afternoon's earnings call. The bar for success may seem pretty low these days if we're celebrating a segment's 85% year-over-year plunge in revenue and a nearly $2 billion crater where an operating profit historically rests. However, there's a method to the mouse's madness of math-ness. Let's break it all down.
A loss is just a number
Success is relative, and when Disney points out that its theme parks business is running at a net positive contribution it means that revenue is exceeding the variable costs. This is good news, even if it means that we're still looking at a lot of red ink.
Closing down a theme park doesn't mean that it's not losing money. There are plenty of costs -- both out-of-pocket and accounting -- that go into sitting on a shuttered attraction. All Disney is saying with those three simple words is that it's losing less money than it would if it weren't open at all. Rival Comcast (NASDAQ:CMCSA) also offered similar guidance for its Universal Studios theme parks in its earnings call a week earlier.
Disney and Comcast aren't going to be profitable with their theme parks anytime soon, but staying open right now is better than the alternative. If you can get enough people to show up to cover your variable overhead -- during a pandemic and a recession with the global tourism market on ice -- you're going to unlock your turnstiles.
We'll find out what this all means three months from now when we start seeing the reports of the parks in operation. The $1.96 billion operating deficit at Disney's segment was for a quarter in which most of its theme parks were closed the entire time. It was only Disney-branded parks in Hong Kong and Shanghai -- in which Disney has a minority stake -- that opened in the final couple of weeks of the fiscal third quarter. If the hole shrinks for the current quarter it will be easier to understand Disney's explanation of covering its variable overhead as a relative victory.
The pressure points between the attraction operators and some of their most active visitors will be resolved over time. Passholders who are frustrated with their standing in the reopening process will either forgive and forget or will be replaced by others when the climate is kinder. For now, Disney, Comcast, and the rest of their peers are just trying to establish some form of normalcy for their guests and employees without breaking the bank.