Investors certainly know Walt Disney (DIS 0.81%) as the media and entertainment powerhouse that owns popular cable networks including ABC, The Disney Channel, FX, and ESPN. The business also has a budding streaming division that is starting to report positive operating income.
But in fiscal 2024, 37% of the company's revenue came from the experiences segment, which encompasses Disney's theme parks, cruise ships, and consumer products. It's a key part of the flywheel that helps the brand connect with consumers across the globe.
Management has announced a massive $60 billion investment, double the original plan, for the experiences division over the next decade. That's definitely a large sum of cash, but history says it's the right move that will pay off for the House of Mouse.
Bringing Disney's IP to the physical world
Disney's wide economic moat comes from its valuable intellectual property (IP), with its studios, franchises, and characters creating a treasure trove of content. The company's success is directly related to how it monetizes this IP. A lot of its money is made in movie theaters and on TV screens.
However, Disney's experiences segment brings this IP to life. The company owns two destinations in the U.S. and has a beneficial interest in four internationally. In total, it has 12 different theme parks. Seven of these are in the top 10 of the most popular by attendance. Combined, Disney sees 100 million visitors annually.
The company also rakes in revenue from its cruise ships and consumer products. Combined, this all makes up a very profitable segment, registering a superb 27% operating margin in fiscal 2024. That's better than entertainment and sports, the company's other two segments.
Doubling capex on experiences
Management wants to double capital expenditures to $60 billion over the next 10 years. That requires a huge cash outlay that will directly affect the company's ability to produce free cash flow.
Among the initiatives Disney plans are new attractions within the 1,000 acres of land that it hasn't yet developed across the world. A Pirates of the Caribbean Lounge is set to open this year, for example, with a Villains Land on the horizon later this decade. Expanding the cruise ship fleet is a huge priority. It just completed the Treasure, which set sail in November, with two new ships coming late in 2025. Between 2027 and 2031, four more ships will be built.
NYSE: DIS
Key Data Points
The cruise industry continues to see robust demand following the pandemic's disruptions. Disney not only wants to capitalize on this trend, but it also wants to use ships as a funnel to bring its IP to more fans. According to company research, there are 700 million people with "high Disney affinity" that have not visited a theme park, a huge untapped market opportunity.
This isn't the first Disney spending spree. At the start of the 2010s, the business directed more capital investments to parks and cruises. This resulted in much faster growth in operating income during that decade than in the previous decade. Executives aim to boost returns on invested capital, which will help its experiences segment create value for Disney.
Serving a larger customer base
This segment has historically been able to steadily raise prices, as evidenced by higher per-capita spending. That's certainly a wonderful quality to have.
There's a flip side to this, though. The last thing management wants to do is to keep raising prices to a point that they discourage families from visiting its theme parks or taking cruises. With that in mind, I believe the overarching goal is to expand capacity so that Disney can cater to more consumers. This can help increase the number of visitors instead of relying heavily on price hikes.
Investors should pay attention to commentary about specific investments being made and the returns that are achieved. Between fiscal 2014 and 2024, operating income for the experiences segment rose 132%. The hope is that Disney's planned $60 billion investment will result in that growth rate getting a boost.
