Insights

What’s Good for Universal Orlando Is Even Better for Disney World and SeaWorld

Walt Disney’s (NYSE: DIS) top rival in the competitive Central Florida theme park battlefield firmed up its pricing last week. Comcast’s (NASDAQ: CMCSA) Universal Orlando increased prices for its annual passes. The move might not seem like much — a mere 6% to 8% increase across its various forms of year-round admission — but it’s actually the second boost this year. Comcast joined Disney World and SeaWorld Entertainment (NYSE: SEAS) in raising ticket prices in February.    
It’s easy to see why prices are heading higher. Demand is strong, and consumers are willing to pay up for a day of escapism. It’s also not shocking to see Universal Orlando picking up the cadence on its annual passes. High gas prices might eat into out-of-state visitors coming down to Florida this summer, but that demand destruction isn’t going to hit the locals, who account for the lion’s share of these yearlong admissions. Comcast knows what it’s doing, and it’s a move that will also benefit competing attractions. 
Image source: Universal Orlando.

Heavy turnstiles
You’ll hear a lot of apologists justifying the increase as an investment for the future. Some Universal Orlando fans on social media argue that the resort is raising prices for the second time in four months because it’s building a new park that is set to open in 2025. It’s flawed logic, of course. The folks paying up in 2022 aren’t investors. They’re not owners. They’re renters, leasing access to the resort for the year ahead. 
Epic Universe is going to be pretty spectacular when it opens in 2025, but remember when that park was going to open in 2023? Go back a few years and you saw the same garbled justification applied to when Universal Orlando was building out its Volcano Bay water park. Anyone assuming that annual-pass price hikes ahead of that attraction’s debut in 2017 were an investment found out the hard way, as they had to buy a more expensive annual pass to include the resort’s third gated attraction. 
Universal Orlando is raising pass prices twice in the first half of 2022, but it doesn’t mean that big things are coming this year. Its last major addition, the impressive VelociCoaster launch coaster, opened in the springtime of last year. Rivals Disney and SeaWorld opened new coasters this year, and they’ll both have another scream machine available by early next year. Comcast’s original Universal Studios Florida resort is actually down a pair of attractions right now, as one is going through a half-year refurbishment and the other is being replaced by a new attraction that has yet to be announced. 
More to the point, it’s not as if any of these companies need to raise prices. They are largely posting record revenue and operating profits right now. They are doing better now than they were pre-pandemic, and doing so with lower attendance because folks are paying more to get in, and spending even more once they get inside.
Per capita spending at Disney, for example, is 40% higher now than it was three years ago. A combination of new premium add-ons, higher food and merchandise prices, and increased demand is creating a perfect storm for the industry’s bottom line. 
Disney’s latest quarter saw it delivering a 16% increase in the segment’s revenue, and more importantly a 32% increase in operating income. Despite facing inflationary pressures and boosting wages, it’s not as if Disney, Universal, or SeaWorld need to be panhandling at this point. They’re making a lot of money, and last week’s hike at Universal Orlando only paves the way for its rivals to follow suit. 
Sure, Comcast and SeaWorld Entertainment are taking advantage of Disney’s push for maximizing guest value. Disney World is no longer selling most of its annual passes to new buyers. It’s only offering the lowest-priced pass that limits access to select weekday visits. Locals who crave weekend experiences have to buy costly one-day tickets or turn to annual passes that are gladly offered by Disney World rivals. 
Don’t feel sorry for leisure stocks. Embrace them. Theme park operators aren’t raising prices because they have to right now; they’re increasing their cover charges because they can, and they will continue to do so until the supply-and-demand balance flips. 
Rick Munarriz has positions in SeaWorld Entertainment and Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends Comcast and SeaWorld Entertainment and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy. –

Walt Disney‘s (NYSE: DIS) top rival in the competitive Central Florida theme park battlefield firmed up its pricing last week. Comcast‘s (NASDAQ: CMCSA) Universal Orlando increased prices for its annual passes. The move might not seem like much — a mere 6% to 8% increase across its various forms of year-round admission — but it’s actually the second boost this year. Comcast joined Disney World and SeaWorld Entertainment (NYSE: SEAS) in raising ticket prices in February.    

It’s easy to see why prices are heading higher. Demand is strong, and consumers are willing to pay up for a day of escapism. It’s also not shocking to see Universal Orlando picking up the cadence on its annual passes. High gas prices might eat into out-of-state visitors coming down to Florida this summer, but that demand destruction isn’t going to hit the locals, who account for the lion’s share of these yearlong admissions. Comcast knows what it’s doing, and it’s a move that will also benefit competing attractions. 

Image source: Universal Orlando.

Heavy turnstiles

You’ll hear a lot of apologists justifying the increase as an investment for the future. Some Universal Orlando fans on social media argue that the resort is raising prices for the second time in four months because it’s building a new park that is set to open in 2025. It’s flawed logic, of course. The folks paying up in 2022 aren’t investors. They’re not owners. They’re renters, leasing access to the resort for the year ahead. 

Epic Universe is going to be pretty spectacular when it opens in 2025, but remember when that park was going to open in 2023? Go back a few years and you saw the same garbled justification applied to when Universal Orlando was building out its Volcano Bay water park. Anyone assuming that annual-pass price hikes ahead of that attraction’s debut in 2017 were an investment found out the hard way, as they had to buy a more expensive annual pass to include the resort’s third gated attraction. 

Universal Orlando is raising pass prices twice in the first half of 2022, but it doesn’t mean that big things are coming this year. Its last major addition, the impressive VelociCoaster launch coaster, opened in the springtime of last year. Rivals Disney and SeaWorld opened new coasters this year, and they’ll both have another scream machine available by early next year. Comcast’s original Universal Studios Florida resort is actually down a pair of attractions right now, as one is going through a half-year refurbishment and the other is being replaced by a new attraction that has yet to be announced. 

More to the point, it’s not as if any of these companies need to raise prices. They are largely posting record revenue and operating profits right now. They are doing better now than they were pre-pandemic, and doing so with lower attendance because folks are paying more to get in, and spending even more once they get inside.

Per capita spending at Disney, for example, is 40% higher now than it was three years ago. A combination of new premium add-ons, higher food and merchandise prices, and increased demand is creating a perfect storm for the industry’s bottom line. 

Disney’s latest quarter saw it delivering a 16% increase in the segment’s revenue, and more importantly a 32% increase in operating income. Despite facing inflationary pressures and boosting wages, it’s not as if Disney, Universal, or SeaWorld need to be panhandling at this point. They’re making a lot of money, and last week’s hike at Universal Orlando only paves the way for its rivals to follow suit. 

Sure, Comcast and SeaWorld Entertainment are taking advantage of Disney’s push for maximizing guest value. Disney World is no longer selling most of its annual passes to new buyers. It’s only offering the lowest-priced pass that limits access to select weekday visits. Locals who crave weekend experiences have to buy costly one-day tickets or turn to annual passes that are gladly offered by Disney World rivals. 

Don’t feel sorry for leisure stocks. Embrace them. Theme park operators aren’t raising prices because they have to right now; they’re increasing their cover charges because they can, and they will continue to do so until the supply-and-demand balance flips. 

Rick Munarriz has positions in SeaWorld Entertainment and Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends Comcast and SeaWorld Entertainment and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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