Tuesday's fresh financials out of SeaWorld Entertainment (NYSE:SEAS) may not seem very encouraging at first glance. Revenue, attendance levels, and what guests are willing to pay to get into one of SeaWorld's gated attractions declined since the previous year's holiday quarter. SeaWorld's net loss widened. Analysts were holding out for more revenue and less red ink.
However, just like one of its aquarium tanks, there's a lot more going on at SeaWorld once you dive beneath the surface.The shares actually opened higher on the news, and SeaWorld stock is now trading 65% higher since bottoming out this past summer. Let's go into a few of the reasons why the theme-park operator's stock isn't sinking.
1. We already knew the fourth quarter was bad
Between weak trends in Latin American tourism eating at a potent visitor pool and Hurricane Matthew forcing park closures in Florida, it was hard to be hopeful about the final three months of 2016. More importantly, SeaWorld itself announced some preliminary results ahead of Wednesday's report.
SeaWorld announced last week that attendance clocked in at 22 million for the entire year and $1.344 billion for all of 2016. Simple math would arrive at the conclusion that attendance and revenue would decline by less than 1% since the prior year's fourth quarter. If analysts were clinging to higher top-line targets, it's because they were too busy to update their numbers on SeaWorld. The net loss was worse than what Wall Street pros were targeting. There was no preliminary announcement on that front. However, it's hard to hold SeaWorld to bottom-line improvement when it's trying to invest in a turnaround. It's also worth pointing out that adjusted earnings before interest, taxes, depreciation, and amortization did clock in above the guidance it provided back in November.
2. The seeds are in place for improvement in 2017
Attendance has now fallen at SeaWorld in three of the past four years, and 2016 was another dud. Attendance slipped 2% for the entire year, as improvement in Texas and a flat showing California weren't enough to offset declines everywhere else. Even the uptick in Texas isn't all that encouraging, as it's the handiwork of SeaWorld in San Antonio breaking out its Aquatica water park into a stand-alone destination. The move helped increase attendance levels, though it came at the expense of lowering the average admission paid across SeaWorld given the lower-priced entrances to water parks in general.
There are still plenty of reasons to be hopeful, and not just because the Blackfish scandal is fading in the rearview mirror. SeaWorld's investing in new rides and attractions across its parks that emphasize experiences over animal performances. It's a move that may not satisfy all critics -- PETA still issued another rebuke after this morning's earnings report -- but it will make it less trendy to hate SeaWorld.
3. Disney and Universal raising prices is an opportunity
SeaWorld CEO Joel Manby was asked about Disney's (NYSE:DIS) Avatar-themed expansion at Disney's Animal Kingdom that should draw guests to Disney World in record numbers this summer. He feels that Disney's addition won't have the same kind of impact that The Wizarding World of Harry Potter had at Universal Orlando, but he still sees area attractions in general benefiting from Disney's big investment.
$SEAS' Manby on Avatar coming to Disney World "We have always been able to carve out our share." Will emphasize value proposition.— Rick Munarriz (@Market) February 28, 2017
The "value proposition" is important. Disney World and Universal Orlando raised prices this month, but SeaWorld held firm, making itself an even bigger value relative to the more popular competition. However, it does give SeaWorld the opportunity to win over locals -- and annual pass sales are up -- and to steal a day or two out of a Disney or Universal vacation.
This isn't SeaWorld at its best, but the stock is trading a lot closer to its 52-week highs than its lows because the seeds are in place for an overdue bounce in its fundamentals.