It's been a challenging year for Comcast (NASDAQ: CMCSA) in general, and its brand new Florida theme park in particular. The media stock has fallen 18% this year, an unflattering slide in an otherwise rising market. It's fair to say that investing in Comcast hasn't been easy.
A lot was riding on the springtime opening of Epic Universe, expanding the footprint of Comcast's Universal Orlando resort. But the gated attraction's early performance isn't the reason for the stock's fall. There are more things for Comcast investors to worry about than early hiccups at the highly immersive theme park.
Comcast is leaning on its cable TV and consumer broadband connectivity businesses to generate the lion's share of its cash flow. Historically it's been able to use that money to bankroll bets that don't have to pay off right away. Now the rules of engagement are changing, with its connectivity business joining its cable TV business in a gradual but definite state of decline. It can't afford to whiff when swinging for the fences. This brings us to Epic Universe. It has a problem. Comcast has to make sure it can fix it.
NASDAQ: CMCSA
Key Data Points
Getting it right the next time
In some ways, the debut of Universal Orlando's Epic Universe has been a rousing success. It's the first major theme park to open in this country in the last two dozen years. At best, it's a whimsical bar-raising marvel. At worst, it's an incomplete park that becomes even more woefully incomplete when the weather deteriorates or its high-tech wizardry hiccups. Unfortunately for Comcast, there have been a lot of thunderstorms and tech blips.
The initial euphoria has faded into a steady diet of unflattering feedback. Epic Universe currently has a Yelp rating of 3.2 out of five stars. This is well short of the 3.5 to 4.2 ratings for its two sibling Universal Orlando destinations and Disney's (NYSE: DIS) four nearby theme parks. Even SeaWorld Orlando is clocking in with a slightly higher score.
Epic Universe is also just starting to recover from the largest reputational challenge that it has faced in its brief history serving thrill seekers and portal chasers. A passenger died on the park's Stardust Racers attraction last month, and the dueling coaster was shuttered for more than two weeks as Universal Orlando completed its investigation. It reopened late on Saturday night -- after a weather delay, of course. The park operator concluded that the roller coaster was operating as intended at the time of the accident, tightening its rider requirements with the goal of preventing another tragedy from taking place. The family of the deceased and Universal still aren't on the same page, but for now a popular and high-capacity attraction is back.
Image source: Getty Images.
Going along for the ride
Theme parks matter to Comcast, even if they're just now starting to move the needle. They account for less than 8% of the $30.3 billion in revenue that Comcast generated in its latest quarter and only 6% of the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The segment saw its revenue surge 19% for the three months ending in June, accounting for a little more than half of the quarter's overall 2% top-line increase. Epic Universe was a major contributor to the rise, and that was with the new park opening midway through the period. Theme parks should be an even bigger driver for the third quarter that Comcast will announce by month's end, with a full three months of Epic Universe in the books.
The new park itself has a lot to figure out before it can attract the kind of attendance numbers that Disney World and Comcast's other Florida gated attractions attract. I have been to Epic Universe several times this year. I'll be back later this week.
I know the experience will get better for guests later this quarter as the weather starts to cool and the hurricane season afternoon thunderstorms subside. The uptime of the current slate of rides will improve, but Epic Universe can't expand fast enough at this point. It overbuilt outdoor attractions. It green-lit some rides that don't belong in a premium-priced park. It lacks the signature and lengthy all-inclusive ride that the great parks have. Epic Universe will get there. Comcast needs it to get there.
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