What happened
Shares of amusement park operator SeaWorld Entertainment (SEAS) leaped nearly 14% in the first hour of trading on Monday. Six Flags Entertainment (SIX -0.50%) stock rose roughly 16%. And the units of master limited partnership Cedar Fair (FUN -1.14%) advanced just over 17%. All three later pulled back from their respective highs, but their gains remained between 12% and 15% at 11 a.m. EDT today.
So what
The gains didn't have anything to do with SeaWorld, Six Flags, or Cedar Fair specifically. These amusement park owners are still dealing with very difficult industry conditions due to COVID-19. They were all forced to shut down because of the government's efforts to slow the spread of the coronavirus. And social distancing, a key focus of the containment effort, holds the biggest challenges here.
Image source: Getty Images
Amusement parks are built to attract large crowds. Worse, people are there to get on rides one after another; disinfecting surfaces between riders would be difficult at best. And then there are the long queues that usually form for popular attractions, putting people in close proximity for hours as they wait for their turn. Add in kids, who are notoriously bad at following directions (such as "Wear a mask at all times," "Wash your hands regularly," and "Don't touch that!"), and the difficulties ahead for amusement parks are material.
That hasn't stopped the industry, with The Wall Disney Company (DIS 0.18%) already reopening in Asia. That's a test being watched the world over, with Disney taking a go-slow approach and limiting park attendance so it can work out the best way to proceed. Domestically, the company is working with key parties, like employees, to ensure it can reopen its U.S. parks in a timely and safe fashion.
It's not the only name in the industry focused on this effort, either, with Comcast, which owns the Universal parks, beating the Mouse to the punch by letting customers back into its Florida retail area, which isn't inside the company's parks.
SeaWorld, Six Flags, and Cedar Fair are definitely monitoring how things progress for the two industry giants. Long-term investors should be, too, since the future of the entire industry depends on finding a way to deal with COVID-19. So news out of biotech company Moderna on Monday sent the amusement park stocks surging even more than the broader market, which itself saw notable early gains.
Before the market opened, Moderna announced that it had achieved early success in a phase 1 trial for a COVID-19 vaccine. If it is effective and quickly finds its way to market, the dim outlook for the amusement park industry would brighten considerably. Not only would park lovers likely feel more comfortable visiting, but the need to limit attendance and spend extra money on cleaning might also be reduced. Wall Street isn't wrong to be excited, especially since SeaWorld, Cedar Fair, and Six Flags all carry material levels of debt on their balance sheets.
The problem is that phase 1 trials are still pretty early in the drug approval process. So Moderna's news doesn't mean that there's a vaccine right around the corner. In fact, the upcoming summer season (the most important time of year for SeaWorld, Six Flags, and Cedar Fair) is going to be very bad for amusement park owners even if Moderna continues to see success in future trials. And there's always the risk that the vaccine doesn't actually pan out, which has been the fate of many once-promising drugs.
Now what
The early vaccine success is great, but investors should probably pay more attention to the steps that companies like Disney and Comcast are taking to reopen. There's no telling what will happen with the vaccine, but while the world waits to find out, amusement parks like Disney, Universal, SeaWorld, Six Flags, and Cedar Fair all need to figure out how to operate.
