The Universal Orlando theme park recently raised its single-day ticket prices to $92, up from $89. Interestingly, whenever Disney or Universal have taken an initiative to increase ticket prices, the other has soon followed. Hence, the recent increase in ticket prices by Disney is not a surprise.
It must be noted that EBITDA margins of Universal Theme Parks, like The Walt Disney Company (NYSE:DIS), have declined considerably over the past three years. This is predominantly due to different accounting standards followed by both NBC and Comcast. However, NBC’s management believes that raising ticket prices should support the declining margins in the future.
Both Disney and NBC have resorted to an increase in ticket prices in order to sustain margins. Nonetheless, I believe the strategic move can only prove successful if the macroeconomic environment improves, leading to a higher consumer discretionary spending. In contrast, some analysts consider that Parks & Resorts in the U.S. are a duopolistic industry, thus, a simultaneous increase in ticket prices by both companies will not have a lasting impact on the demand.
Within the Parks & Resorts business, Disney only competes with Universal studios. Nonetheless, we are discussing factors that may impact Disney’s stock price, hence, it becomes essential to mention one of Disney’s biggest competitors, News Corp (NASDAQ:NWSA).
According to the valuation offered by Trefis, ESPN channels constitute 40% of The Walt Disney Company (NYSE:DIS)’s present stock price. News Corp’s Fox sports directly competes with ESPN channels.
News Corp generates a large percentage of its revenue through Fox and Fox Cable Networks, at around 29%. This is followed by Movie & TV shows at around 21%. The remaining revenue is split between Sky Italia, Broadcasting, and NY Post.
At present, Fox Sports has shifted its focus to international markets in order to cover more international sporting events. In addition, management believes offering highly competitive subscription pricing will enable it in capturing some of ESPN’s market share. However, the programming content offered by Fox Sports is still not at par with ESPN, as most leading sporting events are only broadcast through ESPN channels.
Will this impact Disney’s stock price?
If an increase in ticket prices bolsters Disney’s revenue, then we may witness a positive impact on Disney’s stock price. Many believe that Disney is a well diversified media company; hence, a small change in a single business driver may not hold much significance.
However, according to the valuation offered by Trefis, Parks and Resorts hold a 19% value in Disney’s present stock price, which makes it a considerable contributor. I believe, if The Walt Disney Company (NYSE:DIS) is able to sustain the visitor footfall parallel to increase in ticket prices, then the company seems well positioned to exhibit strong earnings in the coming quarters.
The article Will an Increase in Ticket Prices Aid Disney’s Earnings? originally appeared on Fool.com and is written by Kiran Gulati.
Kiran Gulati has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Kiran is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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