Disney shares dip after it doubles park investment
Shares in Disney recovered slightly in premarket trade on Wednesday, after slipping more than 3.6 per cent in the previous session, as the Mickey Mouse creator announced plans to double investment in its theme parks.
Shares looked set to rise about 0.2 per cent when the market opens later on in the US.
It is ratcheting up spend on its kingdom parks, products and cruises to $60bn (£48.5bn) over the next ten years to help it bolster its struggling streaming service revenues.
“We’re incredibly mindful of the financial underpinning of the company, the need to continue to grow in terms of bottom line, the need to invest wisely so that we’re increasing the returns on invested capital, and the need to maintain a balance sheet, for a variety of reasons,” said chief executive Bob Iger.
Disney’s parks took a hit during the pandemic as the gates of the Mickey Mouse Clubhouse were closed due to lockdowns.
However, since reopening, they have been a cash cow for the company, as revenues bounced back with a 13 per cent rise to $8.3bn during its third quarter.
Victoria Scholar, head of investment at interactive investor, said this has helped offset profit woes in Disney+, the company’s streaming service, and its Studios division.
The media giant is struggling to hang on to subscribers, losing over 11m in its most recent quarter.
“Shares in Disney have underperformed the wider market this year. Having enjoyed a strong January performance, the stock has largely been under pressure since, reflecting concerns about its business model,” Scholar said.
Iger made a shock comeback to the helm of Disney in November, having previously led the firm for 15 years until 2020.
Despite the negative investor reaction to the move, potential new charaters and franchises seems a “sensible plan for growth” rather than price hikes, said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
In January, activist investor Nelson Peltz said Disney’s reliance on hiking ticket costs was “unsustainable”.
Disney had come under intense criticism for layering up prices in its theme parks, and squeezing out money from customers, a tactic high profile investor Nelson Peltz called unsustainable.
“Although there are signs that consumers are more willing to forgo big ticket items, for socialising and holidays, competition for tourist dollars is intense and how this investment is deployed will be closely scrutinised,” Streeter added.