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Theme parks are just not a great business. For comparison, look at the stocks of Cedar Fair (FUN) or Six Flags (SIX). While obviously a tier below Disney, these companies have massively underperformed the market over a long period of time.
We used to go on family vacations to Cedar Point and my dad was so impressed by the high prices and massive crowds that he bought stock. But what he didn't see was high up front capital costs and huge maintenance expenses. Want to be cash flow negative while still paying high taxes? Build something in America.
If you want to make money, just make software bro. The tax system in America is biased against brick and mortar, even the ones that sell $12 hot dogs.
What does the tax system have to do with it? US software companies have profit margins of ~100%, at least for SaaSs. I’d go so far as to say that basically 100% of productivity gains between 1990 and today are from computers and that the tech industry itself captured the vast majority of that value. Are theme parks more productive than they were 30 years ago? What have they innovated?
Glad you asked. If I pay you to make software, 100% of your salary is deductible immediately. If I build a factory, I have to depreciate it over decades and can only deduct a little each year.
For this reason, software will have great cash flow relative to paper earnings while capital intensive real world businesses the opposite is true.
For an example, take a look at the earnings and balance sheet of Micron (MU) for the last 10 years. They have, on paper, made great profits. Where has it all gone? Dividends? Buybacks? Sadly for investors no. All the money gets dumped back into capital investment (Property, Plant, and Equipment). Warren Buffett warned against buying these type of companies where all the profits go back to equipment. The balance sheet of Micron grows apace, but investors get little.
This isn't how business works. Innovation is not necessary or sufficient to have high earnings. What have cigarette companies innovated? And yet they were the world's best investment of the 20th century. How about Lululemon? Are they innovators? Because their stock is a rocket ship to the moon.
Meanwhile Micron (MU) has been extremely innovative. Yet the stock has done nothing for 25 years.
To make money you need pricing power. You need a moat.. That's another reason software is a great business. Changing your payroll system is a pain in the ass, so when Gusto raises their prices 25% you just pay. Theme parks have no moat. If they charge too much, I can just take my kids somewhere else.
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