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Theme Parks: Disney World/SeaWorld Trends Robust, Expansion Plans Upgraded

Thomas Paulson
Nov 11, 2023
Theme Parks: Disney World/SeaWorld Trends Robust, Expansion Plans Upgraded

This week, Disney shared that its California theme parks outperformed--which our data shows below--and the company took significant market share within the destination theme park market. Disneyland’s dollar market share would be up meaningfully more than attendance share given nice increases in per-caps and hotel stays. Management’s guidance for next year suggests continued strength in demand and bookings (i.e., no consumer or economic pullback). Given all the changes/challenges going on in Disney’s other businesses, management was quite sparse in their commentary about domestic parks, additionally, the big driver at parks for the quarter was its international division, where profits jumped from nil to $441M, representing more 50% of the domestic’s segments profits ($808M).

SeaWorld reported strong revenue growth driven by per-caps with admissions (-2.8% year-over-year) in line with our visitation data (-3.8%). Placer data also showed a -2.8% decline in visitors if Busch Gardens Williamsburg is removed (which is more of a drive-to/locals theme park) from the results. Aside from calendar distortions, admissions would have been up.

As to the current pace of the business, Seaworld CEO Marc Swanson said, “We just completed another successful Halloween season at our parks, featuring our award-winning Halloween events. We are pleased to have grown per capita spending in October.”  As shown below, September was a very strong month for SeaWorld Orlando and October was strong too. (Orlando and San Diego attract similar levels of visitation.) Recall that Universal also had a very strong response with its Hollywood Horror Nights event.

On expansion and new attractions, Swanson said, “Expansion/ROI Capex is Capex related to specific projects that we have high confidence, will generate attractive ROI, typically 20% plus cash-on-cash returns...Historically, we have allocated approximately $25-$50M each year to this type of capital spending. Based on our increased cash flow generation in recent years, this year our Board challenged the management team to identify and present a comprehensive list of the high-confidence ROI projects across the enterprise. Based on discussions with our Board, we aligned on spending an additional roughly $80M this year on such high-confidence projects. (Recall that Disney recently increased their spending plans by 22% to $60B over ten years and that Universal Studios is opening Epic in Orlando.)

Per new hotels and hospitality offerings, Swanson said, “As you all know, we have significant excess land across most of our parks that is currently underutilized. We have a unique opportunity to build highly compelling hotels that will integrate with our parks, allow us to capture profits from our guests that are currently staying at other properties, increase length of stay at our properties, offer more compelling vacation packages, upsell and cross-sell guests, increase loyalty and generate an attractive ROIs...These are highly compelling projects that are long overdue. Many of you are fully aware of the value these types of hotels provide to our peers in our various markets, including in Orlando. I'm very excited about the significant investments we are making and the many initiatives we have underway across our business that we expect will improve the guest experience, allow us to generate more revenue and make us a more efficient and more profitable enterprise.
Relatedly, had Six Flags been sensing a material pullback building by consumers, we don’t think management and the Board would have been interested in making an acquisition bid of Cedar Fair. We recently wrote about Cedar Fair having a soft summer due to attendees to the Ohio parks being off to other markets this past summer; this merger allowed them to sidestep any potential negative reaction to their Q3 2023 results (which came through fine on lowered expectations). Adverse weather was also an issue for the industry this past year (most recently hitting Six Flags in the Northeast and Mid-Atlantic regions during late 3Q 2023 and into October), as such, providing greater geographic diversity was one of the foundational reasons for doing the deal; implicit in that is a broader and more balanced geographic footprint which lowers the seasonality of the business, while also allowing for the combined company a more compelling cross-park pass proposition. A more compelling proposition is reflected by an expected +$270M revenue lift from the combined companies (i.e., more passes sold and at a higher rate). The merger also allows $120M in expense take-out redundancies; combined this is $200M in synergies. That $200M compares to pre-merger combined EBITDA of about $1B. (Attendance and EBITDA are similar between the two companies.) Lastly, given the rising importance of scale to the industry and a rising capital-intensity to compete (see our piece on that here), this merger allows the two companies to double scale.

Source: Cedar Fair/Six Flags Joint Conference Call Presentation

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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