Cost and Competition Make Disney Parks the Company’s ‘Achilles' Heel’

When Walt Disney entered the theme park industry, it seemed like an absurd idea. What did a cartoon maker really know about creating an entertainment destination?

Like many things in Walt’s life, he eventually proved all the doubters wrong, and The Walt Disney Company became the leader in the theme park industry. But times have changed.

Wall Street has started to look deeper into The Walt Disney Company and found that the theme park sector of the company could be its “achilles heal,” potentially dragging the company’s stock price. With Disney’s film division reorganized and producing billion-dollar hits and the streaming sector moving toward profitability, analyst Douglas McIntyre of 24/7 Wall Street thinks Disney’s theme park division is what’s keeping the stock from taking off.

McIntyre pointed to the fact that over the past year, Disney’s stock has only risen two percent, while the S&P 500 has increased 16 percent. The two main culprits dragging Disney’s theme park sector are cost and competition.

McIntyre wrote: 

Disney’s Achilles’ heel is its theme park business, “Experiences.” Its revenue rose only 3% last quarter to $9.4 billion. Operating income was flat at $3.1 billion and is 60% of Disney’s total operating income. Investors worry that Disney’s parks have gotten too expensive for middle-class consumers. 

He also suggests that Disney may have “tapped out” its Experiences business, meaning that the company has hit a ceiling on what people are willing to pay for a trip to a Disney Park. Fans have long felt that Disney World and Disneyland have become too expensive for the average family, while Disney has stripped away many freebies that come with a trip to its parks.

As far as competition, McIntyre notes that other parks and experiences are not nearly as expensive, and families are starting to rethink their vacation plans.

Disney World and Disneyland are facing competition like never before, especially from its arch-rival Universal. Disney’s closest competition is on a building spree, opening parks in Texas and Las Vegas and expanding their current parks in Florida and Southern California.

However, expanding smaller regional parks that offer guests a cheaper alternative closer to home has also taken a bite out of Disney’s business. 

Disney executives have acknowledged that they are pricing out some guests, but they have done nothing to alleviate that situation by making their vacations cheaper. Even mainstream papers like the Wall Street Journal and the New York Times have acknowledged that Disney’s prices have gotten too high.

Despite all this pressure, Disney will not appear to make any changes. So, their experiences division will continue to be the company’s “Achille’s heel,” and we all know how that worked out for Achilles.