With asymptomatic omicron variant cases of COVID-19 hitting the 1,500-per-day mark in China, The Walt Disney Company (DIS) closed the Shanghai Disney Resort, its flagship amusement-park complex in China, on March 21, 2022, until further notice. Earlier, a sister park, the Hong Kong Disneyland Resort, announced that it would remain closed until April 20, 2022, while the Shanghai resort started operating on reduced capacity last week. Indoor events in Shanghai, China's financial hub, were suspended as well at that time.
As of March 21, local asymptomatic COVID cases in Shanghai had been on the upswing for four consecutive days, while symptomatic cases reached a total of more than 130,000. The current wave of the COVID infections is the country's largest since the pandemic's first wave started in Wuhan, China, in 2020. Under China's "dynamic clearance" policy to fight COVID, schools have been closed, and citywide testing is underway.
- Shanghai Disney Resort is shuttered until further notice to control the spread of the omicron variant of COVID-19.
- Shanghai schools are closed, and citywide testing is being rolled out, under China's "dynamic clearance" policy, aimed at snuffing out flare-ups.
- With Disney seeing robust revenues from ongoing investments in its direct-to-customer services, the Shanghai resort's pause may have scant impact on the company's overall outlook.
Recent Changes in Park Rules
Shanghai Disney had been operating at reduced capacity for a week before the closing. To enter the park, guests were required to show a negative result from nucleic acid amplification test (NAAT) taken within 24 hours of their arrival and a valid ID. For the government's part, China has set its sights on "dynamic clearance," a policy in which local governments attempt to control outbreaks since its preemptive measures to achieve zero COVID cases have failed.
The Shanghai Disney Resort includes the Shanghai Disneyland and two hotels, the Shanghai Disneyland Hotel and the Toy Story Hotel, as well as Disneytown and Wishing Star Park. The company stated that guests can get a refund or exchange on tickets and that it will notify guests when the resort reopens as it works with local authorities.
The Disney parks are estimated to gross over $1 billion per annum in revenue or $50 million in operating profits. In the very early days of the pandemic in 2020, when the Shanghai park shut down, JPMorgan analyst Alexia Quadrani stated that the closing would not significantly affect the company's outlook since she expected Disney's streaming business to offset revenue loss in the parks. Quadrani is now Disney's head of investor relations.
Two years later, in its first-quarter 2022 results, Disney beat expectations for its parks and content services. The company plans to continue to invest in its direct-to-consumer (DTC) products and aims for a target subscription total of 230 million to 260 million in 2024. DTC revenue is expected to rise due to increased subscriptions and through changes to the pricing structure. The temporary closing of the Shanghai park and extended closure of Disney Hong Kong may make even less of a dent if the company delivers on its guidance based on its new focus, current strengths, and ongoing investments in DTC.
The Bottom Line
The Disney resort complex in Shanghai has closed due to rising infections from the omicron variant of COVID-19. Shanghai Disney temporarily shut down on the heels of the shuttering of the Hong Kong Disneyland Park until April 20, 2022. Despite the lost revenue from the parks, it is not expected to affect the company much as a whole because of Disney's successful diversification into DTC products, such as streaming offerings, and its plans to raise prices on subscriptions.