Pixar Animation Studios, a subsidiary of Walt Disney (NYSE: DIS ) , has purportedly rewritten the ending to "Finding Dory," the highly anticipated sequel to "Finding Nemo," in response to the fracas surrounding the "Blackfish" documentary. The documentary paints a very unfavorable picture of SeaWorld's (NYSE: SEAS ) treatment of orca whales and chronicles the tale of the SeaWorld orca that killed three people. The Blackfish movie makers and SeaWorld have engaged in a furious back-and-forth public relations (PR) battle as a result.
As this "PR battle on the high seas" continues to unfold, important questions should be raised. Who will win this PR battle? Should this be cause for concern with SeaWorld investors? Are there more attractive investment options in the amusement park industry? We will be diving into the answers to these questions and see how even if SeaWorld "wins the argument," the damage Blackfish is currently wreaking will outweigh, and there are better options for investors to look into.
Why SeaWorld will be harmed
To approach the question by pitting Blackfish against SeaWorld and asking who will win or lose is erroneous. Even if SeaWorld successfully disproves Blackfish's claims, the company will most likely have already lost in the court of public opinion. Consider the example of the "Gasland" documentary, and how public debate has erupted and actual policy change has been enacted over hydraulic fracturing. Even though the claims of Gasland are hotly disputed, and a counter-production to Gasland was created, Gasland's bad PR effect on hydraulic fracturing is still influencing people and policy-making today. Blackfish will most likely have the same negative affect on SeaWorld at a time when SeaWorld badly needs revenue.
In the beginning of 2013, I wrote a blog post about SeaWorld going public entitled "Shamu Makes a Splash on Wall Street: The New SeaWorld IPO." In that post, I outlined why SeaWorld's stock price might have some potential to rise, but overall the company is a very risky investment to stay away from. Many of the talking points I raised in that post are still legitimate almost eight months later. SeaWorld does have a fairly nice dividend payout, but I would stay away from SeaWorld stock for now, especially in light of the growing Blackfish scandal. The fallout from Blackfish shouldn't be overestimated and will most likely last only a few months to a year at most. SeaWorld still needs to grapple with other looming issues first, though, and that is why SeaWorld stock is a risky gamble at best.
Why Disney and Cedar Fair are better options
Disney is a much better pick for investors for several reasons, as excellently outlined by fellow Motley Fool contributor Adrian Campos (click on hyperlink). The ten-second case for Disney above SeaWorld is that Disney is a multifaceted, diversified stock that draws upon several streams of revenue, while SeaWorld is too highly dependent upon a few sources of income. Disney is not only the beloved theme park and movie company we all know but is also a multinational mass media empire, being the largest media conglomerate in the world in terms of revenue generation. SeaWorld is almost entirely involved in the theme park business, while the Walt Disney Company is involved in theme parks, movies, publishing, broadcasting, and cable TV.
With relation to the Blackfish documentary, Disney made a fiscally and PR-prudent move when it changed the ending of "Finding Dory." This already highly anticipated film will help boost Disney's bottom line while exposing a weakness in SeaWorld.
If you are looking for a potentially better investment option in the amusement park industry, one might want to take a look at Cedar Fair (NYSE: FUN ) . Cedar Fair is arguably a two-dimensional stock as opposed to the one-dimensional SeaWorld, since Cedar Fair parks are a big draw for local visitors. Cedar Fair has a much better track record of generating consistent streams of cash. As fellow Motley Fool writer Anh Hoang explains,
Cedar Fair is a publicly traded limited partnership, operating around 11 amusement parks, four outdoor water parks, one indoor water park and five hotels, serving more than 23 million visitors in 2012.
In the past ten years, Cedar Fair has managed to generate an increasing cash flow. While operating cash flow increased from $135 million in 2003 to $286 million in 2012, its free cash flow rose from $95 million to $190 million during the same period.
If investors are craving for good yields, they should choose Cedar Fair...due to its high dividend yield, reasonable leverage and the low valuation.
So, what we have seen is that the "public relations battle on the high seas" between the Blackfish movie makers and SeaWorld will hurt SeaWorld's reputation in the short term. Safer long-term picks can be found in Disney and Cedar Fair. While SeaWorld does have a nice dividend, and I have always enjoyed visiting the park in San Diego, I do believe that SeaWorld is not a stock that investors should pour money into at this time.