Disney (NYSE: DIS) recently held an investor conference in Orlando, which turned out to be a mini-vacation for participants complete with a tour of its theme parks.
Needham analyst Laura Martin attended the event and gained important insights into Disney’s developments and fundamentals.
She compiled a few key takeaways, which include the prospects of the company’s new immersive hotel idea, the positive changes that the new rides in the parks can bring to the business, and Disney’s competitive position in streaming.
Star Wars Hotel: A ‘High-Stakes’ Gamble
Looking at Disney’s new hotel concept first, the $5,000 per cabin for two days is an interesting concept that gives guests a very real Star Wars experience.
However, Martin is concerned that this concept attracts only a niche market. A concept that took six years to design and execute seems like a “high-stakes” gamble to the analyst.
Martin ran a cost-benefit analysis and emerged with several questions on the sustainability of this model. Assuming 100% occupancy, the hotel would bring in $91 million per year.
Taking into consideration the costs associated with maintaining this hotel, Martin sees healthy profit margins. However, Martin is not sure whether Disney can sustain 100% occupancy.
Pros and Cons of New Rides
Martin had mixed reviews about the theme park rides. She pointed out that the new rides, which are more focused on storytelling than throughput, are expected to pull in more crowds than the park can handle. This, in turn, can hurt the company’s guest ratings.
Moreover, the larger number of guests waiting in 60-to-80-minute lines will be given the comfort of air-conditioned spaces, meaning, sharply higher energy costs over the next five years. Disney’s goal is to achieve self-sufficiency with electricity from its solar farms.
On the flip side, air-conditioned waiting spaces in the hottest months of the year throws a key competitive advantage at Disney over Universal, Sea World, and other parks in Orlando.
Expert’s Take on Disney
Martin reiterated a Hold rating on Disney, based on the analyst’s belief that consensus estimates are too ambitious, given the high impending investment in its D2C business scheduled for this year.
Moreover, the analyst is also not clear on the earnings contributions from Disney’s linear TV and film releases this year, as the world slowly gets vaccinated. She, however, is confident that Disney’s strong balance sheet can withstand longer COVID-induced earnings headwinds.
Wall Street, however, is more upbeat about the prospects of Disney. The consensus rating of Strong Buy is based on 15 Buys and five Holds. The DIS stock price projections point to an average price target of $190.89.
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