Most people, when they think of Disney (DIS), probably think about the $2.8 billion dollars made by Avengers: Endgame or the $1.5 billion made by the Lion King remake. Or maybe they think of the $2 billion made by Star Wars: The Force Awakens or the $1.2 billion made by Incredibles 2. And while those are obviously impressive numbers and the movie studio segment is key to Disney’s continued success, I believe most people would be surprised to learn that Disney actually makes more money from their parks segment. In fact, in their most recent quarter, the parks segment nearly doubled the revenue of the studio segment and more than doubled the operating income.

My family recently returned from a week spent at Disney World, so I figured I would combine my thoughts on our experience with some opining on why Disney is one of the larger positions in the Freedom Portfolio.

Let’s start with my takeaways from our trip:

Disney World is Massive

Before visiting Disney World, I was vaguely aware that it was quite large, but nothing prepared me for actually experiencing how massive it is. According to wikipedia:

The property, which covers nearly 25,000 acres (39 sq mi; 101 km2), of which only half has been used, comprises four theme parks (consisting of Magic Kingdom, Animal Kingdom, Epcot, and Disney’s Hollywood Studios), two water parks, 27 themed resort hotels, nine non-Disney hotels, several golf courses, a camping resort, and other entertainment venues, including the outdoor shopping center Disney Springs.

Walt Disney World entry in Wikipedia

And yet somehow it felt even larger when we were there. Any single one of the 4 parks felt large enough and packed with enough rides and experiences and stores to have entertained us for days. We barely did any exploring of our own resort, let alone any of the others and didn’t even visit either of the water parks. I suspect we could take a week long vacation to Disney World every year for the rest of our lives and never run out of things to see and experience.

I definitely need to make sure I train before our next trip, though. One of our family members wore a fitness tracker which estimated that we walked 6-7 miles a day. That doesn’t even count climbing into and out of rides and pushing strollers. My entire lower body was sore just after the first day and it felt like it took an entire week after the trip was over for me to fully recover.

It Really Is Magical

Going into our trip, I was a little skeptical that Disney World really was all that different from other amusement parks that we had gone to recently like Kings Dominion and Hershey Park. Of course, I thought my daughters would be thrilled to meet characters like Anna and Elsa and Ariel, but surely my jaded and cynical adult self will be thoroughly unimpressed and see through the facade, right?

Well, I have to admit that even I found myself very impressed and, dare I say, filled with a sense of wonder that it pretty uncommon these days. Seeing such landmarks as Cinderella’s castle in Magic Kingdom or the Tree of Life and floating islands of Pandora in Animal Kingdom were genuinely awe-inspiring. I was even impressed by the relatively more mundane things like the Epcot World Showcase. There was a lot of attention to detail to make visitors feel as if they were being transported to a whole different country.

Many of the rides were also incredible. There were numerous times where I found myself wondering just how they were able to simulate the feeling of soaring through the air while riding a banshee in Avatar Flight of Passage or being blasted into space. An otherwise fairly basic coaster like Expedition Everest had fun touches like a destroyed track that it feels like the coaster is about to fly off of and even relatively simple rides like Peter Pan’s Flight were just so well executed to make you feel like you were flying that I couldn’t help but enjoy myself.

But it wasn’t just the rides themselves that were impressive. Many of the waiting areas for rides were wonders unto themselves. While it’s always disappointing to wait in line, Disney made the experience about as enjoyable as possible. Waiting areas fully leaned into the theme of the ride, and many had displays, videos, or other things to keep people pre-occupied and/or provide background information. It was a nice touch for a park known for their long lines.

In fact, it was notable how rarely I was disappointed by any of the rides and attractions. At one point, we were watching a Frozen sing-a-long, when I turned to a family member and half-jokingly said, “I’m disappointed that they didn’t actually have snow falling during this”. Lo and behold, just a few minutes later it started to “snow” inside the auditorium. Yes, the snow was just some white foam, but that fact didn’t do much to dampen the enthusiasm of the children and served to remind me to never doubt the lengths that Disney would go to exceed expectations.

Awesome Customer Service

Just as magical was the customer service all around. Virtually every employee I interacted with was happy and helpful and several went above and beyond what was necessary. After one ride which involved us testing a customized car that we designed, an employee overheard my daughter telling us that she missed see the butterfly design on her car. Without even being asked, the employee asked us if we wanted to ride again. We were allowed to skip the line and ride again almost immediately so that my daughter was able to see her butterfly design. It was an incredibly unexpected touch that immediately switched an experience from mild disappointment for my daughter to joy.

Special props to the actors and actresses (or do they prefer “cast members”?) playing princes, princesses, and other characters. It has to be difficult dealing with all of the awkward costumes and heavy make-up while interacting with hundreds of children of various ages, but I was consistently impressed by the performances. Never once did I see anybody break character, and they all seemed genuinely excited to meet my kids, even if I knew that couldn’t be further from the truth. They all had plenty of in-character small talk to make and almost always had a response to whatever random thing my kids wanted to talk about. Really impressive.

Previously, I might’ve been skeptical reading a story like this, where the behavior of all involved sounded just a little too perfect. However, after personally observing dozens of interactions between my kids and Disney cast members, I can believe it.

The Importance of IP

While I mentioned previously that many of the rides and shows were amazing, I was also keenly aware of how much heavy lifting was being done by some of the amazing intellectual property that Disney has. Songs like Let it Go, Be our Guest, and Hakuna Matata were used to maximum effect all over the park(s), and while we saw some pretty amazing puppet-shows, plays, acrobatic acts, sing-alongs and other performances, I had to wonder if the kids would still be as into them if they weren’t Nemo, Simba, Beauty and the Beat, and Frozen themed. My kids loved the Under the Sea ride at Magic Kingdom, but if you strip away all of the songs and nostalgia around The Little Mermaid, it seemed like a fairly unremarkable ride that I’m not sure my kids would’ve bothered with at all.

This isn’t intended to necessarily be a negative, of course. The fact that Disney does have all of this amazing IP that they can leverage into merchandise and attractions is one of the powerful things about the company.

Finely Tuned Machine

Perhaps the most underrated aspect of the magic of Disney World was how much of a finely tuned machine it seemed to be in terms of moving people efficiently through rides. Pretty much every significant ride had extra personnel on hand to direct people, based on the number of people in their party, to the appropriate car(s) to ride in. This helped to ensure that every run was filled nearly to capacity. The amount of down-time between runs as people were loaded and unloaded was amazing, especially when compared to other amusement parks that I had been to.

There were countless small touches that individually probably seem inconsequential, but which I’m sure all add up to shave precious seconds off each run of a given ride. Most roller coasters had storage bags inside the cars for storing hats or glasses that might fall off during the ride. Videos and employees prepped people in advance on how to handle the ride restraints. Some rides didn’t even stop, and relied on people boarding moving cars. Signs outside of the rides indicated the estimated wait so a passerby could determine at a glance if the wait was worth it. All things considered, it was an impressively well-oiled machine.

And none of this is even counting the impressive logistics of things like fast-pass. Disney clearly has spent a lot of time and effort in making sure their lines move as quickly and efficiently as possible.

Yet Room For Improvement

At 5 and 6, I thought my daughters were right in the prime age range for Disney World, which is why I was baffled by how often they struggled to be able to see the action during the shows that we took them to see. Both of my daughters are on the taller side (80th percentile or highers) and yet they struggled to see the action on stage for almost all of the shows we took them to, even when we had them sit on our laps. Maybe the stadium seating needed to be elevated higher or booster seats need to be made available, but it felt like a bizarre oversight considering how many shows were offered and how geared they were towards kids.

They also had a strange system set up in terms of keeping everybody supplied with cold water. We were given re-usable plastic mugs that we could fill at many food locations around the parks, but the vendors weren’t allowed to fill them with water for us. Instead, when we asked for refills, they provided us with multiple paper cups filled with ice water to refill our mugs with. It was a bizarre system that resulted in a ton of wasted paper cups. There clearly has to be a better way.

Lastly, Disney has decided to do away with plastic straws and offer paper ones instead, which is simply an awful decision that I hope they reverse. Seriously, paper straws are the devil and it’s hard to make an ecological argument for them considering the massive amount of paper cups needlessly wasted on water refills.

Contributing to the Obesity Epidemic

Disney might want to invest in an insulin manufacturer, because I’m convinced they were trying to give me diabetes. More specifically, I’m convinced their meal plan was trying to give me diabetes. Maybe we got the wrong meal plan, but I’m fairly convinced I put on at least 5-10 pounds over my vacation despite the miles and miles we walked.

And it didn’t end with our vacation! The easiest way to use up all of our “snacks” and not have them go to waste was to use them to purchase various chocolate covered marshmallows and rice krispies treats to bring home with us. I’ve got enough sugary snacks to last me weeks.

International Appeal

There are three Disney theme parks in Asia and one in Europe, but you wouldn’t be able to tell based on the number of international visitors to Disney World. I was amazed by the number of different accents I heard during our trip and the number of times I heard of lines being referred to as queues.

All Ages Appeal

I was also surprised by the wide age ranges that I saw represented in the parks. I expected the vast majority of people to be children around the same age as my kids and parents around the same age as my wife and I. Instead, I saw tons of older kids, teenagers, young adults, and even seniors who seemed like they might not just be there for their grandkids.

P.A.U.L. Score

Protected: 5

While it’s dangerous to assume that Kevin Feige and the MCU will continue to effortlessly put out billion dollar movies, and the results of Solo and The Last Jedi show how quickly fan sentiment can turn against a once beloved franchise, I also feel fairly confident in giving Disney a maximum score here on the strength of the intellectual property they have. The Little Mermaid came out 30 years ago, and I distinctly remember watching it when I was a kid, and yet Ariel remains my daughter’s favorite princess despite no meaningful new content in decades. The recent live action adaptations of Beauty and the Beast and Aladdin show that there is still a strong nostalgic demand for the Disney princesses, and this is all without even mentioning the hit machine that is Pixar or the attachment that people have to their amusement parks. Disney would have to royally screw up for many consecutive years to burn through the deep well of good will they have built up for themselves.

Alternatives: 3

With their upcoming entry into streaming, it’s a little hard to see what other avenues are available to Disney. The most obvious one to me is getting into video games, where they could leverage their IP to instantly appeal to a pretty wide audience. So far CEO Bob Iger has maintained that Disney has no interest in publishing their own games, and is instead content licensing out to others. However, his contract ends in 2021 and there’s no telling what the next CEO might decide. Still, it’s a little hard to envision what other alternative paths for growth make a lot of sense for Disney going forward.

Understanding: 5

While it may be easy to forget that Disney makes a ton of money off their amusements parks or that it owns properties like ABC and National Geographic, I do find that the company is pretty straightforward and easy to understand. Disney produces movies and television shows, which in turn support their merchandising, licensing, and theme parks. The more popular their content is, the more money it makes directly from box office and advertising revenue, but also indirectly from increased merchandise sales and theme park attendance. Their new streaming service will mean an additional revenue stream in terms of subscriptions, but shouldn’t overly complicate understanding how the company operates.

Long Runway: 3

It’s hard to make the case for Disney having a long runway ahead of it considering they have not only set a record for most billion dollar grossing movies in a year (5), but also broke its own record for highest grossing year ever for a movie studio… all before Frozen 2 and Star Wars: Rise of Skywalker has even come out. Disney has been dominating the entertainment industry in a way that seemingly leaves little room for improvement.

But there is an intriguing opportunity overseas. As part of their acquisition of Fox, Disney also acquired Hotstar, a streaming service in India that already has almost as many users as the US population, with plenty of room for growth. That opportunity alone is enough to make up for the fact that Disney might have already saturated the US market.

Total Score: 16

A really good score. Disney might lack the tremendous upside that a lot of my other positions have, but I do think it has a really high floor and have a hard time envisioning a future where it doesn’t outperform. As much as any other company, Disney feels like it has a stranglehold on entertainment not just in this country, but possibly in the world. I think about how much money Disney got out of my family this trip and how, less than a week later, I’m pre-paying for 3 years of a Disney+ service that hasn’t even launched yet (and I’m by far not the only one) and I just see a really strong company with an even stronger future ahead of it.

This is a stock that I would love to be able to pass along to my kids.