How Disney's Experiences Segment Can Restore the House of Mouse

Key Points

• Walt Disney's Experiences segment generates a motherload of profits, nearly doubling its Entertainment segment's $3.1 billion in Q4 operating income.
• Disney will launch its Disney Destiny cruise ship in 2025.
• Its flagship, Walt Disney World in Orlando, Florida, faces a new threat with Universal’s Epic Adventure theme park slated to open on May 22, 2025, just 15 minutes down the road.

The Walt Disney Co. NYSE: DIS is a massive media and entertainment organization in the consumer discretionary sector that operates primarily under three segments: Entertainment, Sports and Experiences. While its streaming networks in the Entertainment segment are in the black, the Sports segment has had the slowest growth. However, the Experiences segment stands out as its most consistent segment, generating the majority of its operating income.

This segment is expected to drive profit growth for the company and restore the House of the Mouse’s growth trajectory.

Here's What the Experiences Segment Is Comprised Of

As the name says, this segment is about capturing live experiences for its customers. This segment encompasses Disney’s theme parks, resorts and consumer products. Its products, services and brands include:

Theme Parks and Resorts include Walt Disney World Resort in Florida, Disneyland Resort in California, Disneyland Pari, Hong Kong Disneyland Resorts, Shanghai Disney Resort, Tokyo Disney Resort and Disney Cruise Line, Vacation Club and Adventures by Disney. Its National Geographic expeditions offer premium expeditions ranging from Australia’s reefs and rainforests to Sri Lanka and South Africa.

Consumer products include licensing Disney, Marvel, Star Wars, and Pixar characters, properties for merchandise and retail Disney Stores and ShopDisney.com, toys, apparel, books, games, Disney Publishing Worldwide and merchandise.

The segment has proved its resiliency, scalability and ability to leverage its IP.

The Experiences Segment Proves Its Resilience During an Ominous Backdrop

In Q1 2025, Disney's Experiences segment generated 38% of Disney's revenue, growing 3% year-on-year (YoY) to $9.4 billion but generated 75% of the operating income, which was flat at $3.1 billion. Even more impressive is that it occurred during a slowdown in its international theme parks, sluggish consumer spending and hurricanes Milton and Helene. The hurricanes caused a $120 million hit in the quarter.

Steady Cash Flow Generation and Consistent Results

Unlike its streaming services, high content costs or declining advertising revenue in its linear networks business, the Experiences segment generates steady cash flow from park and event ticket sales, hotel stays, merchandise and food, resulting in high-margin revenue streams after fixed costs are covered. Disney invested $23.4 billion to prop up its entertainment segment and “only” $5.4 billion in its experiences segment, which includes cruise ships, resorts, and parks.

CFO Hugh Johnston added during the conference call, “I'll handle the Experiences question. Obviously, no change to the guide that we had previously provided. We had said Experiences would be up 6 to 8 on the year. The strong Q1 increases our level of confidence in the guide, for sure. It's obviously quite early, but we certainly feel good about the fact that we were able to power through with a stronger performance than our expectations were for Q1. In terms of the balance of the year, recall the easier comps for the Experiences business occur in the back end of the year, particularly in Q4.”

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Disney’s Destiny Launches in Q2 2025

In the second quarter of 2025, Disney's newest $1.1 billion cruise ship, Disney Destiny, will set sail and post revenues.

The ship will set sail from Fort Lauderdale to the Bahamas and the Western Caribbean. 

Its itineraries will include four and five-night cruises featuring Disney heroes and villains.

The family dinner show is inspired by The Lion King. Marvel Studios' Dr. Strange inspires its lounge, and bars will celebrate Pirates of the Caribbean and Cruella De Vil. 

Disney is also expected to launch the Disney Adventure in Singapore, followed up by a fourth Wish-class ship in 2027.

Fending Theme Park Dominance From Universal Studios

Disney's rival Universal Studios, owned by Comcast Inc. NASDAQ: CMCSA, is launching its Universal Epic Universe on May 22, 2024. Universal has formidable IP and licensed characters and themes, including Harry Potter, Wizarding World and Super Mario, opening up just 15 minutes from the flagship Disneyworld in Orlando, Florida, featuring some of its strongest IPs like Star Wars and the Marvel Cinematic Universe.

This will be a litmus test as its Orlando resort has been the crown jewel of its Experience segment, generating 60% of the profits in 2024.