A Fool's Response to a Seaworld Bull

Seaworld (NYSE: SEAS  )  went public less than one year ago, with major investment from Blackstone Group to support its IPO. After a quick advance up 26% the first day, and finally to a high of $38.92 in mid-July 2013, everything seemed good for the entertainment services company. Over the next six months, the stock has fallen pretty consistently, now down 26% from those highs to around $32. Some have expressed opinions that the stock now looks attractive as the company has ample upside from this recent dip. While their claims about the company's potential to rise from these depths are not unfounded, let me explain why I'm still bearish on this stock.

Why they are bullish
An analyst at Seeking Alpha recently reported in their article SeaWorld: A Shamu-Sized Opportunity For Investors that there are reasons this stock could see a 50% upside in 2014. 

First, they claim Seaworld will have a better year for seasonal sales, because 2013 held Easter at an inconvenient time, but that the holiday lands more favorably in 2014. Next is that the new attraction for the park chain called Antarctica is to be opened this season. Then, with the only real financial metric of the argument, they urge that higher ticket prices in 2014 will be a driver of cash for the company. 

Finally, these bulls believe that the company has already weathered the worst of the damaging effects from the documentary Blackfish that came out last summer. Over the last week, because the film was not nominated for an award during this years film awards, as it was expected to be, the stock price jumped as investors breathed a sigh of relief.

Why I'm still bearish
Seasonality is not something I look for in my long-term stock picks. Over the long term, it will all even out, so choosing an investment based on seasonality is the kind of market timing that Warren Buffett calls a fools game. Factoring the changing date of Easter into an investment decision is not a component to looking for companies that provide great long-term value.

Attractions at theme parks come and go regularly, it's part of recurring operations. Unless it's some major overhaul or groundbreaking new attraction or product line, I don't see that as adding enough value to change the company's long-term prospects in a meaningful way. Consistency with adding public-pleasing attractions is a value adding operation for a company like Seaworld, which they seem to accomplish, but again that does not mean that this one new attraction is a valid reason to make a decision to buy shares of this company now. 

Higher ticket prices and per capita revenue growth is the one area in which these analysts are making a reasonably strong argument. The company has been able to grow its per-visitor-revenue to $61, up from $57 the prior year. This is a positive note that even if the number of visitors declines, each visitor will be worth more. However, these rising per capita revenues are not helping the company's bottom line much, as it seems to be for some of Seaworld's competitors.

While Walt Disney  (NYSE: DIS  )  itself is not a pure play in the theme park industry, the company's parks and recreation sector is a definite threat to Seaworld. Disney reported 9% revenue growth in 2013 YoY in the company's park and resorts operations alone, above the company's reported 7% revenue growth companywide. With more ample resources to tie in movie characters as mascots, as opposed to real animals, Disney also has more control over how the public views their operating activities, and is less likely to be a victim of activist attacks. 

Likewise, Six Flags (NYSE: SIX  ) , which operates 18 different amusement parks around the country. Six Flags enjoys a profit margin of over 22%, while Seaworld's profit margin is just 3.80%. Additionally Six Flags has a nearly 5% dividend yield, rewarding investors through its strong operating cash flows.

Finally, investors cheering the near miss of the Blackfish documentary has the same effect as seasonality and new attractions. These kinds of public shows of activism against Seaworld have also come and gone over the years pretty regularly. What makes this one different, and shows a future trend, is that seven separate music artists have cancelled their appearances at Seaworld for the spring concerts in light of the film. Thanks to an age of viral videos and instant streaming, with Blackfish becoming available on services such as Netflix for instant download, activists have an easier time getting the word out about the companies they are bashing. Investors should decide if they are comfortable in the long run with a stock that only rises when the public sees less of their dirty laundry. 

Foolish conclusion: choose a side wisely
The bulls' opinions about Seaworld are not without reason. Yet, if these arguments haven't persuaded you, here is another article, Seaworld is Still Sinking, which offers more analysis of the company's lackluster finances. Whether you are a bull or a bear on Seaworld, it is hard to say that currently it is a more attractive investment option than its peers in the industry. 


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