Source: Wisdom Finance

$Disney (DIS.US)$ Increasing investment in cruise ships. The company's sixth ship, the 'Disney Treasure,' will set sail on December 21st, with an expected seven more ships to be launched by 2031. These ships are part of Disney's experience business, which also includes theme park operations, a key growth area that has rapidly expanded in recent years.

Before the Treasure, Disney launched its sister ship, Disney Wish, in 2022, marking the first new ship release in a decade. However, with the launch of two ships, Disney Adventure and Disney Destiny, by the end of 2025, along with five more set to debut over the next six years, Wall Street analysts say it's time to start paying attention to the business.

Morgan Stanley analyst Ben Swinburne stated, 'We believe the return on invested capital for these businesses is higher than that of general non-Disney cruise operations.' He pointed out that since most guests on the cruises are families, the occupancy rates and revenue per room for these businesses are quite high.

'Disney Treasure' can accommodate 4,000 passengers and 1,555 crew members. The launch price starts at $8,511 per person, and all rooms are currently sold out online. Swinburne continued, 'This is clearly a very profitable investment. We believe that their investment in developing this business is a positive thing for the company.'

During an interview last week, Disney CEO Bob Iger pointed out that as more consumers choose nearly all-inclusive cruise vacations over typically more expensive theme park lodging, the Treasure replicates Disney theme park rides, characters, and storytelling.

Morgan Stanley: The cruise business is very important for stocks.

With rising prices and weakening demand, investors have recently become increasingly concerned that disney's theme park business may slow down. However, disney's chief financial officer Hugh Johnston stated earlier this month that the operating profit of the experiences segment (including parks, cruises, and consumer products) is expected to rebound next year, with an increase anticipated between 6% and 8%. He specifically pointed out that the launch of "Treasure Class" is a catalyst for this growth.

In another report to clients last month, Swinburne estimated that by 2026, cruise cabin capacity will increase from the current 5,500 cabins to over 10,000, stating that by the end of this year to the end of 2027, "disney cruise revenue will more than double." Although Swinburne and his team recently disclosed some information about the UK-based disney subsidiary Magical Cruise Company, disney did not disclose its cruise financial indicators.

The analyst stated, "Although still relatively small compared to the overall park business in the usa, and even smaller compared to the experiences business, this segment is not insignificant in terms of its contribution to growth and profit margins."

As shown in the chart below, according to morgan stanley's estimates, the proportion of cruise revenue in the usa experiences market is expected to increase. The company predicts that by 2026, cruising will drive most of the revenue growth in this market segment, with two cruises expected to launch by the end of 2025.

In addition to revenue growth, key indicators measuring profitability—operating margin—is also expected to increase. According to the morgan stanley team, the information disclosed by Magical Cruise Company showed that before the pandemic, the cruise business had an operating margin of 20% to 25%.

While margins have not yet returned to those high levels, likely due to startup costs associated with fleet expansion and the ongoing recovery of the cruise industry, the analyst team pointed out, "disney's historical cruise profitability and public cruise companies indicate that there are opportunities for meaningful operating income contributions in the future."

Finally, Swinburne pointed out that investors are increasingly curious about the development trajectory of the cruise business last year, especially because it relates to disney's future profitability potential. This analyst compared the cruise business with other areas of growth for disney: by 2032, the year when cruise construction is expected to be completed, morgan stanley estimates that the cruise business will generate about 9 billion dollars in revenue and approximately 2.3 billion dollars in operating profit. Meanwhile, as of September 28, the annual revenue from disney's sports business, including the flagship ESPN network, was 17.6 billion dollars, with an operating profit of 2.4 billion dollars.

In other words, the revenue from the cruise business is about half of that from disney's sports business and is expected to ultimately generate revenue comparable to what has been reported for the sports business this year. Swinburne stated, "Cruises play a very important role. For those of us focused on growth and the company's ability to deliver or exceed expectations, understanding the timing of the cruise release and its contribution to earnings is actually very important. This is crucial for disney stocks."

Editor / jayden