Disney’s upcoming theme park in Abu Dhabi could boost its profits by as much as $2.3 billion in its first decade of operation according to new analysis.
As this author forecast in a social media post and follow up report, Disney announced in May that its next resort will be built in the capital of the United Arab Emirates (UAE). Almost instantly, it gave a glow to the media giant’s stock price.
The value of Disney’s shares have largely been in decline since they hit a high of $201.91 in March 2021. Colossal losses at its streaming division combined with a string of costly box office duds led to Disney’s stock price crashing to an almost 10-year low of $81.72 in April this year. It was even lower than it fell at the onset of the pandemic but it wasn’t long before the magic returned.
When Disneyland Abu Dhabi was announced on May 7, the stock price surged by 10.8% and now stands at a healthy $115.17. A staggering $18 billion was added to Disney’s market capitalization on that day alone but this might just be the start.
Theme parks, not movies, are the engine behind Disney’s profits thanks in part to fat margins on the food, beverage, merchandise and queue-cutting passes sold there. Disney’s Experiences segment, which includes its theme parks and consumer products, generated just over a third of the company’s $91.4 billion revenue last year but nearly 60% of its $15.6 billion operating income.
That trend hasn’t stopped as Disney announced yesterday that in the third quarter of this year, Experiences was again responsible for the majority of its $4.6 billion profit and a whopping 38.4% of its $23.7 billion revenue. So why was its stock in the doldrums until its new outpost in Abu Dhabi was announced?
In order to keep guests streaming through the turnstiles, theme parks need to build new attractions and that comes at a high price. Disney is currently in the midst of a $60 billion spending spree on its Experiences division involving the expansion of all of its six existing theme park resorts. Not only will it take years for these new attractions to open but it remains to be seen how many consumers will be able to afford to visit them when they do.
Accordingly, the $60 billion commitment wasn’t warmly received by investors as this report in July last year explained. Since then the outlook for the tourism industry hasn’t significantly improved, in part due to the threat of President Trump’s tariffs. In May the Airlines Reporting Corp. (ARC) announced that U.S.-based travel agency air ticket sales dropped 4% year over year in April marking the third straight month of declines and the largest decrease in 10 months.
The following month, investment research firm Morningstar reported that travel booking site Expedia was experiencing softening demand in its core U.S. market amid tariff uncertainty. Major hospitality companies Hilton, Hyatt and Wyndham also cut their full-year outlooks, citing the challenging macro environment and softening consumer demand amid concerns that travelers are holding off on trips.
Perhaps most worryingly, last month, the esteemed University of Michigan consumer sentiment survey hit 61.8 which was 16% below December 2024 and far less than its high of over 100 at the start of 2020.
It perhaps explains why investors had been disenchanted with Disney’s stock despite it posting sparkling results. In fact, almost every division of Disney’s Experiences segment posted higher revenue and operating income in the third quarter of this year than they did for the same quarter last year. There was just one exception.
Consumer products revenue and operating income rose by 2.9% and 0.9% respectively. Revenue at Disney’s domestic parks was up 10% while their operating income surged by even more with a 22.5% increase. However, a dark cloud hung over their international counterparts in Paris, Shanghai, Hong Kong and Tokyo. Although revenue at Disney’s international outposts rose 5.6% to $1.7 billion, their combined operating income declined by 3.1% to $422 million.
Disneyland Abu Dhabi will change that and then some. Indeed, the transformation it will have is the reason why the Abu Dhabi announcement cast such a powerful spell on Disney’s stock price despite the uncertain outlook for the tourism sector.
Disney owns and operates almost all of its existing theme park resorts so it reaps all the rewards but carries all the risk and the cost of investment. The Mouse’s Abu Dhabi outpost will be different as it will be built, owned and operated by government-backed Miral, which is comfortably the world’s leading theme park manager outside Disney and Universal as this report explained. The magic touch this will have is that Disney will receive licensing income from the resort but won’t need to foot the cost of developing or building it.
It is a similar model to the one at the Tokyo Disney Resort, which is owned and operated by the Oriental Land Company (OLC), a specialist leisure venue operator listed on Japan’s Nikkei stock exchange. OLC contracts Disney’s Imagineering design division to develop the attractions and hotels at its two parks and the media giant also earns royalties on revenues generated by the resort.
Details of the royalty rate are confidential and neither Disney nor Miral have commented on it. However, according to filings for other foreign Disney parks “the royalty rate charged by TWDC [The Walt Disney Company] on Disney resorts outside the United States is largely the same at 5% to 10% of revenues, depending on the source of revenues (e.g. merchandise, food and beverage, admission, etc.)”
This reflects comments in former Disney CEO Michael Eisner’s memoir, Work in Progress, which said that the final contract for Tokyo Disney “gave Disney 5% of the gross revenues on all food and merchandise and 10% of the gross on admissions.”
Morningstar puts the royalty rate at 7% of total revenue on average while a 2017 report by market research firm Skift claimed (https://skift.com/2017/08/25/tokyo-disney-resort-remains-a-key-asset-in-asia/) that Disney’s effective royalty rate (based on parks and hotels) averaged at 6.1% over 11 years.
Taking this more conservative figure for the year to March 31, 2025 yields $269.7 million, or 2.9% of Disney’s annual Experiences segment operating income. As the chart below shows, 6.1% of parks and hotels revenue brings OLC’s royalties to $3.5 billion over the past 15 years giving an average of $232.6 million per year. If Abu Dhabi yields a similar sum it would give Disney $2.3 billion over a decade.
Royalty deals like this typically include minimum guarantees so Disney shouldn’t lose out if revenues are lower than OLC’s which are generated by two parks compared to the one which has been announced for Abu Dhabi. However, The Wrap recently claimed that Disneyland Abu Dhabi is forecast to get 32 million visitors in its first year which is higher than the two parks at Tokyo Disney according to the Themed Entertainment Association’s ranking of park attendance.
This would comfortably make Disneyland Abu Dhabi the world’s most-visited theme park which may seem fanciful as there is no precedent for it. However, Miral’s ultimate objective isn’t purely ticket sales as the Abu Dhabi government is developing leisure facilities, such as theme parks, to diversify its economy away from fossil fuels due to its dwindling reserves. The grander the parks are, the greater the number of visitors they attract and the more diverse Abu Dhabi’s economy becomes.
It is why Abu Dhabi aims to be the world’s leading theme park destination and in order to take that crown it will have to attract guests from far and wide which will put its Disney outpost in competition with all of the others. To tempt tourists to Abu Dhabi, its Disney park will have to be better than all of the others which reflects the bold claim made by Disney’s chief executive Bob Iger that it will be “the most technologically advanced theme park that we’ve ever built.” It could also be why it might end up being the biggest as this author explained and, in turn, it could end up attracting more visitors than any other theme park.
The more visitors the park in Abu Dhabi gets, the higher its sales will be and the higher the royalties will be. Crucially, as Disney doesn’t have to spend any money on capital expenditure or park operations in Abu Dhabi, the royalties will fall straight to Disney’s bottom line and turbocharge the operating income of its international parks division. This explains why Disney’s stock price soared on the announcement of the new park and when its doors swing open it should make quarter on quarter operating income declines in Disney’s international parks division a thing of the past. That’s far from the only benefit the park could bring to Disney.
“From an investment standpoint, it positions Abu Dhabi as a premier global destination capable of attracting world-class brands, which will likely catalyse additional international entertainment and hospitality investments in the region,” said Josh Gilbert, market analyst at eToro, in a recent interview with Forbes Middle East.
“Having a Disney resort in the Middle East extends [Disney’s] reach to a new geography, potentially boosting Disney’s consumer products and media business in the region as well. It could stimulate Disney+ subscriptions, merchandise sales, and film popularity in MENA [the Middle East, and North Africa] as the park builds a local fan base.”
As this author reported, the park could open as soon as 2030 so Disney stockholders may not have to wait long to get this happy ending.