Disneyland in China: A Great Addition to The Walt Disney Company
Jacob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I always say that if I had a portfolio consisting of one stock, it would be The Walt Disney Company (NYSE: DIS). The company has many qualities that makes it a great investment. It's a pretty large company with a greatly diversified portfolio, it has accomplished consistent growth over the years, and management has been running the company really well and investing carefully. Just about every movie and product made by the company becomes the next hot thing, so, not surprisingly, the company's Disneyland project in China is expected to be another hot product.
Disney CEO Bob Iger has announced that a Disney Resort in Shanghai is scheduled to open in 2015. The resort is expected to have many features of typical Disneyland in addition to some Chinese motifs. Iger said that the new Disneyland in China "can't be the Disneyland that Walt built in 1955 for all kinds of reasons.... It has to look, feel, resemble China's Disneyland. And that has taken a lot of thought, a lot of work." I am really curious and excited to see what the Chinese version of Disneyland will look like, but I am sure of one thing: it will be another money maker for the company.
The new Disneyland will cover an area of 495,000 square feet and include two large hotels, dining and entertainment centers, a large artificial lake and many related amenities. Currently, Disney has a resort in Hong Kong; opened in 2005, it is the closest one to Shanghai. It's been a cash cow.
In 2012, the Hong Kong Disneyland generated $550 million in revenue, an increase of 18% over the revenue generated in 2011. The park attracted 6.7 million visitors in 2012, up from 5.9 million visitors in 2011. In 2012, both the number of visitors and the average amount of money spent per visitor increased by a double-digit percentage.
The resort in Shanghai should have similar results as the one in Hong Kong, if not better. The ever-growing Chinese economy has made a lot of people wealthier than they were a few years ago. When it comes to wealthier Chinese, one of the favorite activities is to do "American stuff," such as eating American food, having American toys (such as iPhones), watching American movies, and generally living like an American. Disneyland in China will definitely capture the attention of many wealthy Chinese.
In many countries, but not in China, Disneyland competes with Six Flags (NYSE: SIX). In the last few years, Six Flags has received plenty of attention from the investors as it increased its revenues from $898 million to $1.07 billion between 2009 and 2012. Furthermore, the company's earnings have been getting better each year. In 2009, Six Flags reported a loss of $0.71 per share followed by a loss of $0.16 in 2010, a profit of $0.55 in 2011, and a profit of $5.60 per share in 2012. As a result, the company's share price has appreciated by 53% in the past year, not counting dividends of nearly 5%. Despite the recent rally, the company still enjoys a low P/E ratio of 10, which means there is still plenty of upside.
Another competitor is SeaWorld (NYSE: SEAS), which is definitely more expensive than the other two companies. It enjoys a P/E ratio of 40. SeaWorld is expected to earn $1.12 per share this year, followed by $1.31 next year, and $1.52 in 2015. Therefore, we are looking at a forward P/E ratio of 25 for this company.
Out of these three, I would definitely pick Disney because the company has such a wide range of income generators. It has TV channels, movie studios, cruise ships, resorts, gift stores and many other items where it continues to make money. Next year, we'll see Walt Disney monetizing its LucasArts purchase when it releases the next Star Wars movie. Looking at Disney's performance with its last acquisition (Marvel), it is safe to say that the company will monetize LucasArts quickly and efficiently. I own shares of Disney, and I plan on increasing my stake if we see a pullback or a correction. It is definitely one of my favorite stocks.
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Jacob Steinberg owns shares of Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!