Six Flags Entertainment (SIX +0.00%) just reached a deal with a property developer in Dubai, and plans to build an amusement park in the city's industrial outskirts. To date, Six Flags has remained in the North American market like it's competitor Cedar Fair (FUN +0.00%). Although the move to Dubai is exciting, Foolish investors should look at the demographics to decide if the move will have a large impact on Six Flag's profitability.
Dubai Deal
Newspapers in the Middle Eastern Emirate reported that local property developer Meraas Holding reached a deal with Six Flags to build a theme park, which is expected to open in 2017. Details are currently limited, but this is not Six Flags' first attempt to create a theme park in Dubai. In 2008, Six Flags announced a deal with Dubai Holding to open a park by November 2013, but Six Flags terminated the agreement in 2010 after Dubai Holdings breached the contract because they failed to make a payment.. With global credit markets in better shape than a few years ago, it looks likely that this deal will be completed.
Revenue & profitability
Six Flags is currently the largest theme park operator in the world, with 16 locations in the US, 1 in Mexico, and 1 in Canada. Six Flag's competitor Cedar Fair has 11 amusement parks, 3 outdoor water parks, 1 indoor water park, and 4 hotels within United States and Canada. A few of Cedar Fair's attractions include Cedar Point in Ohio, Dourney Park in Pennsylvania, and King's Dominion in Virginia.
|
Total Revenue | |||
|---|---|---|---|
|
2011 |
2012 |
2013 | |
|
Six Flags |
$1.013 B |
$1.070 B |
$1.110 B |
|
Cedar Fair |
$1.028 B |
$1.068 B |
$1.135 B |
As the table above shows, both companies have achieved increasing revenue in the prior three years. This is to be expected since amusement park revenue is highly correlated to the overall economy.
|
Net income | |||
|---|---|---|---|
|
2011 |
2012 |
2013 | |
|
Six Flags |
$13.145 Million |
$403.039 Million |
$156.873 Million |
|
Cedar Fair |
$65.295 Million |
$101.856 Million |
$108.203 Million |
In 2011 both companies had a hard time translating sales to the bottom line. In 2012 Six Flags took advantage of a tax-carryforward, which added $184 million to the bottom line. Profitability in 2013 was normalized and can be expected for the next few years. The question then becomes how diversifying into Dubai will effect Six Flags' profitability.
Demographic difficulties
While geographic diversification is a positive, since it decreases exposure to the North American economies, Foolish investors may worry about the saturation of amusement parks and entertainment in Dubai. There are currently 22 amusement-related parks in Dubai, which include Universal Studios Dubailand, F1-X Theme Park Dubai, and Legoland Dubai. This is a lot of amusement parks for a 2.1 million population, many of whom are low-skilled Asian construction workers who are more likely to send their disposable income to their family's rather than ride roller-coasters.
What about tourism? There were approximately 10 million visitors to Dubai in 2012, a yearly increase of 9%. Tourism will likely increase as the area continues to develop, but the issue remains that there are a lot of businesses competing in Dubai for entertainment and amusement park dollars. In Six Flags' North American market, the company serves a population of approximately 100 million and 175 million within a radius of 50 miles and 100 miles, respectively.
Foolish Takeaway
Six Flags and Cedar Fair achieved revenue and profitability growth due to the rebound of the US consumer. The Dubai deal Six Flags recently signed should help limit exposure to the US economy a little bit, but it is unlikely to have a significant impact on profitability. With that said, could diversification into China or India be next?
