Disney's international parks bring in only a fraction of the segment's profits.
Walt Disney ( DIS 1.88% ) has been hit with another COVID-19 pandemic-related blow, as the company announced it temporarily closed the Shanghai Disney theme park and resort as of Monday, March 21. That region of China has been getting hit hard by the omicron variant, and infections are rising.
The Chinese government has implemented tighter restrictions when compared to other large countries to combat the spread of coronavirus, in part because the Chinese-made vaccines have not been as effective in combatting the disease. It's unclear how long the current closure of the Disney properties will last, but it will be long enough to have some effect on the company's revenue this quarter. Let's take a closer look at how this could affect investors.
Image source: Getty Images.
Shanghai Disney to close temporarily
The Shanghai Disney website posted a notice:
"Due to the current pandemic situation, Shanghai Disney Resort, including Shanghai Disneyland, Disneytown, and Wishing Star Park, will be temporarily closed from Monday, March 21, 2022. We will continue to monitor the pandemic situation and consult local authorities, and will notify guests as soon as we have a confirmed date to resume operations. We apologize for the inconvenience and will provide a refund or exchange for all guests impacted during this period. Thank you for your understanding and cooperation! We look forward to seeing you soon!"
In terms of revenue impact, investors should know that Disney derives a significantly lower part of revenue and operating income from the international theme parks. In its fiscal 2019, before the outbreak, Disney's domestic theme parks earned $17.4 billion in revenue and $4.4 billion in operating income. Meanwhile, the international parks generated $4.2 billion in revenue and $507 million in operating income.
Disney owns a minority stake in the Shanghai Disney location (which celebrates its fifth birthday this year). Still, the closure will dent the company's recovery from the pandemic. Disney earns a large part of its revenue and profits by bringing groups of people together, so it should be no surprise.
NYSE: DIS
In its most recent quarter ended on Jan. 1, Disney's domestic theme parks more than tripled revenue year over year to $4.8 billion from $1.5 billion. The international parks doubled revenue to $861 million from $378 million. Operating income turned positive to $1.5 billion domestically and $21 million internationally.
During lockdowns and closures, management used the time to make enhancements to its park operations, such as adding mobile ordering at restaurants and a digital reservation system. The company also raised prices on admissions, parking, and concessions, which helped the segment deliver the excellent performance in revenue and operating income mentioned above.
Park closure could be an opportunity to buy Disney stock
Overall, the temporary closure of one of its parks in the international segment is not likely to have a meaningful impact on overall profits. Some customers who wanted to visit during temporary closures could reschedule to future dates. And the international theme parks deliver only a fraction of the segment's operating income anyway. If Disney's stock price falls due to this news, it could present an opportunity for long-term investors to scoop up shares at a discount.
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