Why Walt Disney Co (DIS) Stock Has More Problems Than Just ESPN

DIS stock is often knocked down for its ESPN struggles, but declining foreign tourism is also an issue

By Jonathan Berr, InvestorPlace Contributor


Want another reason to dump Walt Disney Co (NYSE:DIS) stock? The good times at the company’s Parks and Resorts business — once a bonus to DIS stock — are coming to an end. 

Parks & Resorts, which include Florida’s Walt Disney World and California’s Disneyland Park, were a bright spot for the Burbank, California-based company in its latest quarter.

Revenue in the unit surged 9% to $4.29 billion, the best performance in any DIS division. Profits rose 20% to $750 million, helped by last year’s opening of the Shanghai Disney Resort and increased consumer spending.

The Other Problem for DIS Stock

Unfortunately, costs in the current quarter are expected to increase “meaningfully” as new attractions open, including Pandora The World of Avatar at Animal Kingdom, Guardians of the Galaxy Mission: Breakout! at Disney California Adventure and Explorers Lodge Hotel at Hong Kong Disneyland, where it is planning a $1.4 billion expansion.

DIS is also building new Star Wars lands in Orlando and Anaheim and it has opened its much-hyped Iron Man Experience in Hong Kong earlier this year. Let’s not forget the two new cruise ships that are under construction.

Moreover, foreign tourists, who are important customers for DIS stock, are becoming increasingly nervous about the unpredictable nature of the Trump administration. According to Tourism Economics, about 4.3 million fewer tourists will come this year because of the Trump administration’s ban of travelers from some Muslim-majority countries, spurring a revenue loss of $7.4 billion.

Another 6.3 million foreign visitors who would have spent $10.8 billion in 2018, the research group says. Of course, this doesn’t include foreigners angered by President Trump’s “America First” policies.

Other top tourist destinations such as New York City, Miami and Los Angeles either are expecting declines in visitors or are seeing them now. The U.S. Travel and Tourism Office forecast a 0.9% drop in overseas visitors in 2016, the first such decline since 2009. The economic ramifications for the tourism decline are huge since each visitor spends an average of $4,300 over 18 days.

Bottom Line on Disney Stock

Disney isn’t a total basket case. The company’s Studio Entertainment business has dominated the box office this year, controlling about 25% of the market thanks to the success of the live-action Beauty and the Best and Guardians of the Galaxy Vol.2. However, that’s not saying much given the dismal state of the summer box office. The company’s next big feature is The Last Jedi due to be released in December, which should make DIS stock big money, but this “good news” is already baked into the company’s stock price.

Disney’s Media Networks business, however, is a mess. Not only is ESPN losing viewers, but so are the company’s networks aimed at kids such as the Disney Channel and Freeform. Although I believe the cord-cutting issue is overhyped, it remains a growing problem for traditional media companies as is competition from Netflix, Inc. (NASDAQ:NFLX) and other rivals.  

DIS has been able to count on its Parks and Resorts business to offset the volatility in its cable and broadcasting operations and its movie studios. With the uncertainties around foreign tourists, that’s going to be difficult for the business to pull off. Disney stock is headed nowhere fast and it should be avoided. Investors should “wish upon a star” elsewhere.

As of this writing, Jonathan Berr does not own shares in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2017/07/walt-disney-co-dis-stock-more-problems/.

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