Disney World. What do those two words mean to you?
For this Alphavillain it brings back memories of those adverts from the late 90s in which, the night before the big trip to the Floridian resort, the whole family is struggling to sleep because of the excitement.
Every year, millions repeat the same ritual: travelling to a plot of land the same size as Edinburgh for a week or more of rides, water parks and gorging on mind-bendingly large turkey legs.
For the world’s largest media company, it’s also an incredibly profitable venture. In the 2019 financial year, Disney’s “Parks, Experiences and Products” segment accounted for 45 per cent of the Mouse empire’s operating profit, but just 37 per cent of its $68bn of revenues. Clearly, there’s a fat margin to be made on those turkey legs. (We know we bang on about them, but they truly are the eighth wonder of the world. And not for the right reasons.)
The coronavirus pandemic has, for the moment, drained this profit pool. Bar one trespassing visitor, Disney’s parks — from Tokyo to California — remain closed to the public.
But how brutal could it get?
Research firm MoffettNathanson released a note Monday morning estimating profits from this segment will collapse 65 per cent in 2020, with revenues not recovering through the next two years:
It’s sober reading for those Disney investors who, in what seems like an age ago, bought the stock on the excitement around the launch of its new streaming platform Disney+.
Yet MoffettNathanson’s research got FT Alphaville thinking about Disney’s parks and resorts not just as a profit pool, but as something grander: the ultimate economic indicator of whether the world has returned to its 2019 “normality”. Let us explain.
A visit to Disney, and in particular Florida’s Disney World, requires that a consumer does everything they’re not doing right now. First, they need to feel comfortable about their future income enough to blow almost $1,500 per person on a week’s trip. Indeed, staying at some of Disney’s higher end resorts — such as the palatial Grand Floridian — can cost that per night.
In a recession, we know consumers tighten their belts. That means less spending on discretionary items such as holidays, car upgrades and eating out. Disney’s resorts are not immune from this trend, here’s how its US parks revenue fared during the last two recessions. Again, via the excellent team at MoffettNathanson:
But spending at Disney’s parks is just one part of the equation. There’s also the fact consumers have to get their in the first place. If you live in Tokyo, Hong Kong or Los Angeles, you can probably drive. For most, a plane journey will be involved, another industry that’s been walloped by the global nature of the pandemic. Confidence in travel will have to return before anyone will consider a ride on Space Mountain.
Then, of course, there’s the fact that being at a theme park involves being crowded with strangers in tight spaces. Whether it be in a queue for a ride, a river rapids boat or a 4D theatre, the experience is of being kept in perpetual contact with others who, we should stress, are from all over the world. Not the sort of environment which keeps a pandemic at bay. Again, it’s hard to imagine that, absent the emergence of a vaccine or effective treatment for Covid-19, consumer confidence will be high enough to visit a theme park in the near future.
So all-in-all, Disney’s parks have all the ingredients to make it a bellwether economic indicator for our post-coronavirus world. Call it the “DPI”, or “Disney Parks Indicator” if you must.
MoffettNathanson do not expect Disney’s parks to rebound revenue wise until past 2022. For the House of Mouse’s investors, this will be a key metric.
For the rest of us concerned with whether the economy has recovered, or even if it will look the same in a post-pandemic world, changes in attendance – which feature in each annual report and are frequently mentioned on quarterly conference calls – will be the number to watch. After all, if you don’t feel confident enough to visit somewhere you might be puked on by a stranger, can we truly say the world has returned to normal?