So long, and thanks for all the fish, SeaWorld Entertainment (NYSE:SEAS). I closed out my position in the controversial theme-park operator last week, taking advantage of the stock trading at five-year highs to cash out on a reasonably profitable trade.
I bought into SeaWorld on the final trading day of 2018 and got out five months later with a 43% gain. Wall Street's been buoyant through those five months, but I nearly quadrupled the market's return in that time. I prefer to hold my stocks for longer chunks of time -- and I hope you do, too -- but sometimes it's just time to move on. Let me go over the reasons I decided to cut bait on SeaWorld Entertainment.
1. The pop seems overdone
The catalyst behind SeaWorld's burst last week was a huge stock transaction, where Pacific Allied Group sold its stake to SeaWorld and Hill Path Capital. It was Hill Path buying up the lion's share of the stock, and it now commands a 34.5% chunk of the marine-life-themed attractions operator. Hill Path Capital now becomes a more important investor with the board presence to show for it, but the stock's rally was about more than just a big investor getting hungrier.
Investors are relieved that the exit of Pacific Alliance Group, with its sizable stake, proved to be an orderly affair. This is certainly a positive development, but with SeaWorld just a year into its turnaround, I'm not sure if the event's pop was warranted. SeaWorld Entertainment stock hit new highs just as the market was tumbling for the sixth week in a row. I didn't want to overstay my welcome in a market brimming with so many other buying opportunities.
2. The CEO transition was questionable
COO John T. Reilly was tapped as interim CEO in March of last year after Joel Manby left the helm, and he seemed to be more than up to the task. Attendance at SeaWorld's attractions rose 8.6% in 2018, higher than attendance numbers at all of its large peers and the chain's biggest uptick in turnstile clicks as a public company. The stock went on to soar 63% last year, setting the stage for the "interim" tag to be peeled off of Reilly's office.
Things didn't pan out that way, though. SeaWorld announced earlier this year that cruise line industry vet Gus Antorcha would be SeaWorld's next CEO. We may never know what went into the decision to look outside of the company when things were going so well, but that Reilly decided to leave the company a few weeks later instead of retreating back into his former COO role is telling. Antorcha is a strong candidate, but things don't pass the sniff test, here.
3. It will be hard to top 2018
Last year's success followed years of depressed results, but that also makes it a hard act to follow in 2019. Revenue rose a mere 1.6% in this year's first quarter, held back in part by the timing of the Easter and spring break holidays. However, analysts see revenue slowing to a 3.7% clip for all of 2019 after last year's nearly 9% ascent.
After four years of a shrinking top line, it's great to see what should be back-to-back years of top-line growth. However, we're still at least another year away before SeaWorld revenue surpasses its 2013 peak of $1.46 billion on the top line.
I remain a fan of SeaWorld's strategy of adding new rides as a way to shift focus away from its popular yet controversial marine-life shows. SeaWorld has a decent lineup of additions this year, and it has some even bigger additions in store for next summer. It's inevitable that I return as a shareholder, but for now, I'll put my money to work somewhere else.