It's been a grizzly week for the world's leading theme park operator. Walt Disney (DIS -0.04%) had to shutter a part of its most popular gated attraction for hours on Monday after a bear was spotted inside of Florida's Magic Kingdom. The entertainment giant attracted a different kind of bear on Tuesday, as its stock moved nearly 4% lower after announcing that it would nearly double the capital expenditures for its theme parks, experiences, and products to $60 billion over the next 10 years.
Investors could argue that bears have been everywhere since Disney stock peaked north of $200 in early 2021. The shares have gone on to shed 60% of their peak value. Tuesday's hit seems unfair. Ramping up capital expenditures is a smart move for Mickey Mouse. It's a bad take by the market.
Blood in the saddle
Disney could've announced that it was throwing $60 billion into artificial intelligence and the stock would've gone on a mission to Mars. It probably wouldn't have been a smart move for Mickey Mouse. It would have been another bad take by the market.
Investing in its theme park resorts and cruise ships is what Disney needs to be doing. This is the operating segment that is working right now on both ends of Disney's income statement. Its dominant leadership in the theme park industry is what sets its ecosystem apart from anyone else.
Disney isn't throwing more money at legacy networks or local TV stations. If anything it seems as if the media bellwether is looking to shed those rudderless assets if it's able to find someone willing to pay a fair price. Disney can't party like it's late 2020 or early 2021 and ramp up its Disney+ offerings either. Paring back on content is at the heart of CEO Bob Iger's cost-cutting strategy. It's also why the response to Disney's recent misfires at the corner multiplex won't be a new slate of big-budget theatrical productions.
Image source: Disney.
Shifting more money into its iconic resorts and fast-growing cruise line is the right allocation decision. You may have heard that attendance at Disney's domestic theme parks has been sluggish since the springtime. You might also fear that the end of revenge travel will eat into near-term demand for Disney resort getaways and bon voyages on the high seas. Let's shift to a metric about Main Street USA that doesn't get enough love on Wall Street USA.
Revenue per capita at Disney's domestic theme parks last year was more than 40% higher last year than it was in 2019. The turnstile clicks may be lower and slower now, but this business has been delivering record financial results. Disney World's Magic Kingdom continues to be the most visited theme park in the world. Even a black bear wanted to check it out this week. Why wouldn't you place more chips in the segment that was the steadiest generator of revenue and profitability through the pandemic?
This also happens to be the one business where Disney can't afford to be asleep at the steamboat wheel. Top rival Comcast is investing heavily to build out Epic Universe, the next-gen theme park that it will open in 2025. It's just a few minutes' drive from Disney World. Complacency can trigger a lead change. Disney can't afford that, especially with even more people coming to Central Florida to kick the competition's tires in two summers. Disney can turn the threat of Epic Universe into an opportunity it needs to make sure it's raising the stakes.
This is a rough time for media stocks in general, but Disney is the leader in creating in-person experiences at its theme parks and its rapidly expanding fleet of cruise ships. You don't mark Disney down because it's following the money, even if that means spending more now to make even more in the future.
