MyMagic+ Continues to Drain Disney Income

[jcb]

With all due respect to Andy Pok, I'm surprised at the 90% number. It sounds high to me, but perhaps thats a reflection of the general negative reaction I see on the boards here?

90% just sounds to me like Disney is happy having a "B" average. I thought Disney wanted to be different.

 

[Viva Las Disney]

I agree with the previous poster that your headline is a stretch, it is good headline journalism though and sure to get lots of hits.

Nowhere in the report does it say MM+ is a drain on income, it (along with labor and inflation) added to higher costs but that's completely different from a drain on income.

"Higher operating income at our domestic operations was due to increased guest spending and higher attendance, partially offset by higher costs."

MM+ primary purpose is to increase guest spending, according to the report guest spending is up, the problem is we have no idea what role MM+ played in that. We also know costs are up but again we have no idea how much MM+ played in that.

If MM+ accounted for 10% of the gain and accounted for 5% of the increased costs it's ultimately making Disney money and is the exact opposite of a drain, if it accounted for 1% of the gain and 50% of the costs than you're correct that it is a drain, the reality is we don't know so your title is pure speculation.

Regardless of MM+ being a boom or bust that's a very impressive quarter for Disney as a whole.

 

[jcb]

I agree with the previous poster that your headline is a stretch, it is good headline journalism though and sure to get lots of hits.

Nowhere in the report does it say MM+ is a drain on income, it (along with labor and inflation) added to higher costs but that's completely different from a drain on income.

"Higher operating income at our domestic operations was due to increased guest spending and higher attendance, partially offset by higher costs."

MM+ primary purpose is to increase guest spending, according to the report guest spending is up, the problem is we have no idea what role MM+ played in that. We also know costs are up but again we have no idea how much MM+ played in that.

If MM+ accounted for 10% of the gain and accounted for 5% of the increased costs it's ultimately making Disney money and is the exact opposite of a drain, if it accounted for 1% of the gain and 50% of the costs than you're correct that it is a drain, the reality is we don't know so your title is pure speculation.

Regardless of MM+ being a boom or bust that's a very impressive quarter for Disney as a whole.

I never said the earnings report said "MM+ is a drain on income." But again, as I pointed out, in an earlier earnings call (May 30, 2013), Jay Rasulo said MM+ was a "drag" on Disney earnings. This was months after Iger had said the CapEx for MM+ was largely spent so Rasulo must have been referring to MM+ being a drag on operational costs. Now, my use of "income" (rather than "earnings") may have been a little ambiguous. I didn't mean "income" in the sense of revenue so I agree with you that MM+ isn't negatively affecting revenue. But I meant "income" in terms of operating income and MM+ is currently negatively affecting operating income figures.

Disney execs have been quite unwilling to be specific about the impact of MM+. Rasulo and Iger attended an analyst conference in December 2013, Conference. They were asked about the cost of MM+ for the quarter (1st quarter of FY 2014) and how it is affecting revenue and customer behavior.

Iger said "I can't quantify it from a financial perspective yet. It's still early, and we are still rolling out facets of it." He then went on to describe what MM+ will do. Rasulo then explained:

since you mentioned the higher spending, we reported out 170 basis points of margin improvement this quarter. But actually, on an underlying operating basis, the quarter is actually even stronger than that because everything that Bob just mentioned -- we are in roll out. New initiatives are a drag on our margins, almost to the tune of 190 basis points. Now, there's some pension benefit in there that we've talked about before at the Parks, yes, but when you look at adding back 190 basis points to the 170 we reported, it is a very strong operating quarter for Parks and Resorts.

I completely agree this is an impressive quarter but it is in spite of MM+ not because of it. Earnings reports are written by Disney finance folks and the lawyers. Sometimes you have to look at what is not said.

To be clear, I'm not down on MM+. Quite the contrary, I admire Disney for being innovative. I'm only talking about business side of it. I haven't used MM+ at all so I can't say if I like it or not. (I'm not big on detailed planning, however, so it does cause me a little angst.)

 

[sorahl1]

90% is pretty darn good. people are more critical, cynical, and down right more self centered than they have ever been. To get 90% of people to approve of something is just about amazing.

 

[OKW Lover]

Just to help keep our terms straight (sorry, but I'm a recovering bean counter) the term revenue refers to total moneys paid by customers. The term net income (sometimes referred to as profits) refers to the amount left over after you deduct expenses, taxes and depreciation.

You can increase income by raising prices or lowering costs.

 

[jcb]

Just to help keep our terms straight (sorry, but I'm a recovering bean counter) the term revenue refers to total moneys paid by customers. The term net income (sometimes referred to as profits) refers to the amount left over after you deduct expenses, taxes and depreciation.

You can increase income by raising prices or lowering costs.

 

[OKW Lover]

So, I'm guessing that Disney believes the typical start up (high cost) phase is behind them and now they can reap the cost reduction benefits. Probably from staffing and utilization improvements.

Sent from my iPhone using DISBoards

 

[jcb]

So, I'm guessing that Disney believes the typical start up (high cost) phase is behind them and now they can reap the cost reduction benefits. Probably from staffing and utilization improvements.

Sent from my iPhone using DISBoards

Yes and maybe. Yes, because CapEx on MM+ is done or pretty much done. Iger said that in Feb. 2013. Operational costs are still ongoing.

Maybe, because Disney's stated rationale for MM+ has always been to better the guest experience thus increasing guest spending. In a May 2013, earnings call, Rasulo explained:

We have known for a really long time that getting our visitors to Walt Disney World to make decisions about where they spend their time before they leave home is a powerful driver of visits per guest. When they get into the Orlando market and their time isn't yet planned, they can be subject to everything you see down there, which is a lot of in-city marketing for all the many products that people have put there to basically bleed off the feed that we fundamentally motivate.
So if we can get people to plan their vacation before they leave home, we know that we get more time with them. We get a bigger share of their wallet. So that's one thing for you guys to think about.
And the second thing is what happens to purchases when they become much more convenient, and you don't spend time queuing up for a transaction, queuing up to get in the park, and you actually have more time to enjoy the entertainment and, subsequently, spend more money doing things that -- other than standing in line, which, of course, you can't spend any money while you're doing that.

He elaborated on it a little more in September 2013:

The first and most important is that we have known for many years the further in advance guests plan their vacation to Walt Disney World the more time they spend with us.
So a decade ago, 20 years ago we used to talk about ticket sales at origin, trying to get people to buy tickets as part of a package, this is -- fast forward 20 years -- this is full resort visit planning, online, very sophisticated tools including booking your fast passes, booking your restaurants, booking everything that you wish to book in advance about your stay, at home, receiving all of that booking data on an RFID-based wristband that you wear while you are in the Park that becomes your hotel room key, your wallet, your admission ticket to the park, etc., etc., etc. And also allows us to, if you wish and you opt in, to know where you are when.
So the fundamental driver that we feel is, number one, like every other enhancement of our product, the better the product gets the more people want to come and visit. Whether that's new attractions, new services, or in this case the combination of planning tools and on-site conveniences that this technology will provide. That -- in terms of its ability to drive volume and spending, because people who plan in advance tend to spend more at Walt Disney World -- are the key drivers of the revenue push behind that.
However, a secondary driver of revenue will be the services that we can now offer on a personalized basis because we know who you are, where you are and, if you tell us, why you are coming to Walt Disney World for this vacation, whether you're a first time visitor, a 50th time visitor, it is your child's fifth birthday, it is a graduation, it's an anniversary. The more you share with us as a guest the more we are able to tailor services and we think get lift in selling those services. So that is the fundamental economics.

 

[AndyPok1]

Jack,

I largely agree with everything you're saying. Though I'm intrigued as to what they consider Capital Expenditure vs Operating. Sounds like an excuse to have dinner with Jeff and have him explain it to me.

My point was only that I found your title massively misleading, and as they call it on the internet these days, "clickbait". It might as well be a Buzzfeed article, "Bob Iger released Disney earnings, you won't believe what he said next!"

 

[jcb]

Jack,

I largely agree with everything you're saying. Though I'm intrigued as to what they consider Capital Expenditure vs Operating. Sounds like an excuse to have dinner with Jeff and have him explain it to me.

My point was only that I found your title massively misleading, and as they call it on the internet these days, "clickbait". It might as well be a Buzzfeed article, "Bob Iger released Disney earnings, you won't believe what he said next!"

Andy, I disagree that the title was "click bait" and "massively misleading." Sensational, yes; drawing an inference from the earnings report that is not expressly stated in the report, absolutely. I purposely selected a title that would attract attention. That is much more preferable to an article which starts off, "Disney earnings show strong growth." No one needs me to tell them that. Disney trumpets their positive earnings as if they had landed a person on the moon.

But "click bait" and "massively misleading" seems a bit uncharitable. Click bait is for articles that have sensationalized headings which have little if anything to do with the article itself so that the website can generate earnings. The point of my OP was primarily about MM+ and how it was barely mentioned in the earnings report, despite the massive expenditures of capital and operating expenses. Compare MM+ with the cruise ships, DCA modernization and Shanghai, which were/are frequently and prominently mentioned in prior earnings reports.

But even so, I'm sorry you felt the title was misleading. That was not my intent.

 

[GAN]

I could care less what the title is -in fact, I've already forgotten what it was....

 

[OKW Lover]

Jack,

I largely agree with everything you're saying. Though I'm intrigued as to what they consider Capital Expenditure vs Operating. Sounds like an excuse to have dinner with Jeff and have him explain it to me.

My point was only that I found your title massively misleading, and as they call it on the internet these days, "clickbait". It might as well be a Buzzfeed article, "Bob Iger released Disney earnings, you won't believe what he said next!"

You're on Andy. Lets figure out a date once we get back from driving Connor home to TX.

 

[k5jm]

MM+ now being used by half of all guests. 90 percent of guests say it is "excellent." Will contribute to parks earning growth in fourth quarter.

90% of 50% is a 45% overall "excellent", not exactly stellar.

 

[k5jm]

You're on Andy. Lets figure out a date once we get back from driving Connor home to TX.

That sounds like a good opportunity to have Dinner with Jeff when he gets to Texas!

 

[OKW Lover]

That sounds like a good opportunity to have Dinner with Jeff when he gets to Texas!

You bet Mike - I'll have my people check with your people.

 

[DisneyKevin]

Okay...all I'm getting from all of this is that Jeff gets to go out to dinner.

Jack....should we go to dinner?

 

[jcb]

Okay...all I'm getting from all of this is that Jeff gets to go out to dinner.

Jack....should we go to dinner?

Would love to, I have been drooling over the Trattoria San Lorenzo

20120528-20120528_1499.jpg by JackBurgin, on Flickr

 

[mnra]

I wonder how many of the analyst that ask the question have ever used MM+

 

[AndyPok1]

Andy, I disagree that the title was "click bait" and "massively misleading." Sensational, yes; drawing an inference from the earnings report that is not expressly stated in the report, absolutely. I purposely selected a title that would attract attention. That is much more preferable to an article which starts off, "Disney earnings show strong growth." No one needs me to tell them that. Disney trumpets their positive earnings as if they had landed a person on the moon.

But "click bait" and "massively misleading" seems a bit uncharitable. Click bait is for articles that have sensationalized headings which have little if anything to do with the article itself so that the website can generate earnings. The point of my OP was primarily about MM+ and how it was barely mentioned in the earnings report, despite the massive expenditures of capital and operating expenses. Compare MM+ with the cruise ships, DCA modernization and Shanghai, which were/are frequently and prominently mentioned in prior earnings reports.

But even so, I'm sorry you felt the title was misleading. That was not my intent.

Fair points. I went too far in the other direction. I'm very much a "Just the fact ma'am" type person when it comes to news, so I can get excessively annoyed by things even a little bit sensational. There's a reason I'm not in marketing.

 

[AndyPok1]

Okay...all I'm getting from all of this is that Jeff gets to go out to dinner.

Jack....should we go to dinner?

Dinner for everyone!