Disney Parks Generate Big Revenue, Bigger Expenses

Disney‘s parks and resorts business generates significant revenue but limited value because of its highly capital-intensive nature. A Trefis cash-flow analysis finds that the parks and resorts segment contributes about 30% of Disney’s revenues[1] but only 10% to its estimated stock value, making it the company’s fourth-most important division.

Disney (NYSE:DIS) competes with News Corp (NASDAQ:NWS), Time Warner (NYSE:TWX), Viacom (NYSE:VIA) and other diversified media conglomerates. However, Disney is the only big media company to operate a parks and resorts business. Having run the numbers, we can see why. Our analysis follows below.

Mickey Mouse margins

Disney spends significant capital on construction and expansion projects in its parks and resorts, both domestically and worldwide. The segment generated about  67% of Disney’s total capital expenditures in fiscal 2009.[1]

Because expenses in the parks and resorts segment are so high, profits are very low compared to revenues. The division’s EBITDA margin was about 24% in fiscal 2009. That’s higher than margins for Disney Studios but  lower than the margins of the Media Networks business, which includes ESPN and other channels.

We expect EBITDA margins at the parks and resorts segment to rise slowly during the Trefis forecast period, nearing 26% by 2016. You can drag the trend-lines in the charts above to create your own divisional forecasts for EDITDA  and capital expenditures as a percentage of EBITDA, respectively, and see how they impact Disney’s stock price.

Bottom line: although the parks and resorts division generates significant indirect value for Disney by helping the company get close to its audience, that’s a very expensive way to gather market intelligence.

You can see the complete $37.44 Trefis price estimate for Disney’s stock here.

[1] Reported in Disney’s SEC filings.

[2] Estimated using D&A and Operating margin figures in SEC filings for the Parks & Resorts segment.