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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
(DIS - Get Report) Disneyland resort in Tokyo has closed down for about 10 days following the natural disaster that shook the country recently. Disney competes with other media conglomerates like
News Corp.(NWS) ,
Time Warner (TWX),
New York Times(NYT) in the media and entertainment business.
The theme park has been closed along with Tokyo DisneySea while various safety checks are being carried out. Although it seems like the damage to theme parks has not been significant, it provokes a question as to how much Tokyo's Disneyland matters to Disney? Although the recent disaster was extreme, Japan is generally prone to earthquakes. Thus, it is worthwhile peeking into Disney's value that might be at risk.
Our price estimate for Disney stands at $45.20, which is a premium of roughly 7% to the market price.
Disney's Parks and Resorts Business
We estimate that Disney's parks and resorts business constitutes a little over 8% to the company's value. Thus overall this business fairly less significant when compared to filmed entertainment and TV programming businesses. The primary reason behind this is high capital investments that are required for theme parks.
Outside the U.S. the main Disney theme parks and resorts include Disneyland Paris, Disneyland Hong Kong and Disneyland Tokyo. The company has 51% ownership in Disneyland Paris and 47% in Disneyland HongKong. However, Tokyo Disneyland is different in the sense that Disney has a licensing agreement with OLC group that operates the theme parks, hotels and resorts in Tokyo.
Under the licensing agreement that Disney reached with OLC group in 1979, OLC agreed to pay 10% of its admission revenues and 5% of its food and souvenir revenues as royalty to Disney. To take a rough figure, we assume that OLC pays 7.5% of its revenues earned from theme parks to Disney as royalties. Out of about revenues of 371, 415 million yen that OLC Group earned in its fiscal year ended March 2010, about 77% was attributable to theme parks Tokyo Disneyland and Tokyo DisneySea. If we do math, this amounts to royalties of roughly 21,450 million yen. This will be somewhere close to $230 million based on exchange rates around March 2010.
Now these are pure profits. Looking at overall cash profits, it seems that a significant part of Disney's cash profits from parks and resorts is coming from Tokyo theme parks. Thus,Tokyo resort operations hold significance for Disney, even though Disney is not directly involved in it.
You can see the
complete $45.20 Trefis price estimate for Disney's stock here.
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