Serving the themed entertainment space
Attendance & revenue down in 2016
Feb 28, 2017
SeaWorld Entertainment (NYSE: SEAS) reported that both attendance and revenue were down in Q4 and 2016 as a whole. Its Q4 results differed from those of its peers, SIX and FUN, which reported solid revenue growth. According to SEAS CEO Joel Manby, Q4 was negatively impacted by Hurricane Matthew and declines in Latin American tourism to Orlando. SEAS narrowly missed analyst estimates for earnings per share and revenue. There was some good news, however, which probably helped buoy its stock price yesterday. SEAS beat its own EBITDA guidance. The improvement in Q4 EBITDA was helped by personnel reductions, which is a sign that SEAS is taking seriously the need for financial discipline.
Most analysts and news stories surrounding SEAS’ earnings report focused on management’s “Five Point Plan”, especially “repositioning from animal entertainment to experiences that matter.” These new experiences include a virtual reality overlay to its Kraken rollercoaster in Orlando and the new “Electric Ocean” spectacular which is intended to increase in-park stay. Many of the new attractions feature what Manby described as “fun and meaningful.” They include marine-life care, conservation, and/or rescue elements. It remains to be seen if the admixture of meaningful to fun can rescue SEAS from turbulent waters. Given that Busch Gardens Williamsburg is one of my favorite, if not my favorite, theme park, I sincerely hope that SEAS’ management is successful. Theme parks have always been, on the other hand, places where folks escape their everyday worries with childhood fantasy, family memories, and thrills. The questions is then: How much meaningfulness can fun take?
Returning to the parts of the earnings release that should interest investors, Manby also discussed the other pieces of SEAS’ five point plan: “pursuing organic and strategic revenue growth” and “financial discipline.” Revenue growth was resolved into two points: (1) hiring a consulting firm “to enhance…pricing capabilities and ensure” that SEAS is making the most of its “meaningful revenue opportunities”; and (2) international expansion like SeaWorld’s new park in Abu Dhabi. Management clearly sees that pricing the three ticket segments — consumer demand tickets, season pass products, and pre-booked group business — properly is a key to future success. But investors should not expect a simple fix to SeaWorld’s lack of revenue growth. Unlike SIX or FUN, it cannot simply adjust up one day ticket prices and attractively price season pass products to drive revenue and incremental visits. Much of SEAS’ business depends on the greater Orlando and Tampa tourist catchments, which makes a season pass play far less effective. This is probably why SEAS lags SIX and FUN in deferred revenue growth and season pass mix. International expansion will definitely help the bottom line, although it was not clear from the call how many opportunities SEAS has in its pipeline.
Comparable 2015-2016 results for adjusted EBITDA and EBITDA less CAPEX are found in the table below:
The issue for an investor remains the same. SEAS continues to be challenged in the aftermath of “Blackfish”. It also spends more than its peers on CAPEX, which retooling its image will only exacerbate. The foregoing implies that it will be challenged to return as much to shareholders as SIX. The following table shows how SEAS’ Q4 and Full Year stacked up to SIX on those same metrics:
SEAS indexes less favorably in all metrics, but especially FCF. It generates 41% of what Six Flags did in 2016. SIX’s success in generating the total return explored in an earlier note is the result of how much it gives back to shareholders. The same can be said for FUN whose unit holders depend on its relatively high dividend. It remains to be seen if “fun and meaningful” product, a new pricing strategy, and some financial discipline can get SEAS to a similar place.
In the interest of full disclosure, the author is long in both FUN and SIX.