SeaWorld Entertainment (SEAS)Blackfish Scared Investors, but Not CustomersLONG, TP $28 (+40%)

RESEARCH TEAM

Parker Kim, Senior DirectorVishal Bhat, Senior AnalystNancy Liu, Junior AnalystPatches Chen, Junior AnalystNathan Kim, AnalystAustin Partridge, Analyst

Table of Contents

Investment Thesis

Investment ThesisThe “Blackfish” Expose Has Scared off Investors…

-40%

TP $28

LTM Stock Price Chart for SEAS

‘

Investment Thesis…but not Theme Park Customers

Bla

ckfish

R

ele

ase

-1%

-13%

+0.3%

-5.2%

-2.2%

Park attendance has taken a hit, but

nowhere close to the 40% drop that’s priced

inSeaWorld Quarterly Attendance (000s)

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q42012 2013 2014

Investment ThesisAirline Ticket Sales Show Customers Are Loving Cheap Oil

Oil p

lum

mets

+14%

+8% +2%

Cheap plane tickets mean everyone booking

a vacation

US Airline Ticket Sales ($mns)

Company Overview

Company OverviewThe King of the SeaAnnual Revenue

Spending per PersonA

dm

ission

sIn

-Park

Over 22.4 million guests visited SEAS

parks last year, including 3.6

million international

visitors

Company OverviewSince its 2013 IPO and Blackfish, SEAS Has Been Improving

SEAS IPO’d from Blackstone ownership in 2013 at $27

per share

$250mn (13% of market cap)

authorization to buyback SEAS

shares while price is low

Share Buyback Cost Restructuring

Long Term Projects

Brand Improvement

$50mn cost cutting effort targeting 300

jobs with funds to be deployed into marketing and advertising to

capture benefits of current low oil

prices

SEAS spends ~$110mn per

year on advertising and

marketing before this year’s cost-cutting funded

increase

$300mn is being spent on updates to the killer whale exhibits in the 3 Seaworld parks,

designed to encourage

previous visitors to come back

Industry Overview

Industry OverviewSnapshot of the Water Park and Theme Park Industry

The United States has the largest theme park market in the world:

Theme parks are an attractive investment sector:

5 of the 10largest theme parks

11 of the 25most visited theme

parks

$15.4bn

in US theme park revenue

stable cash flow

allows safe leverage

Strong consumer value propositionRelative to other service based out-of-home entertainment

Industry OverviewCompetitor Analysis Shows SEAS Success and Growth

Six Flags8.2%

Universal9.5%

Disney14.1%

Other39.5%

Seaworld

28.7%

Water Park Market Share

Water Park Revenues by Company ($mns)

SEAS

DISUNI

SIX

Theme Park Attendance (mns of visitors)

SEAS

DIS

UNISIXFUN

Industry OverviewAnalysis of Competitive Factors Shows Opportunity

Indirect Competition

Competition Basis

Direct Competition

Seaworld Strengths

Competes with other forms of recreation and entertainment: movies,

at-home-entertainment, sports, attractions, vacation travel

1

2

3

Location, ease of travel accessPrice: admissions and bundlesQuality: rides, creativity, cleanliness

a

b

c

Brand recognition

Zoological collection as differentiatorStrong variety in rides and attractions

Financial Overview

Financial OverviewRelative Valuation Constrained by Small Peer Universe

The relative valuation is constrained by the small number of publicly-traded theme parks, and the lack of publicly-traded water parks.

Company Ticker EBITDA margins EBITDA/Attendee Attendance (mns) EV/EBITDA P/ESix Flags SIX 29% $13.3 24.9 16.9x 63.9xCedar Park FUN 29% $14.2 22.9 13.9x 31.2xMerlin Entertainment MERL 33% $6.9 45.8 12.4x 24.1x

Seaworld SEAS 25% $15.0 23.2 10.0x 34.7x

Median 29% $13.3 24.9 13.9x 31.2xAverage 30% $11.5 31.2 14.4x 39.7x

Outperform/Underperform UNDERPERFORM OUTPERFORM UNDERPERFORM OUTPERFORM MIXED

Target Price (Median) $36.99 $17.44Target Price (Average) $38.80 $22.22

Financial OverviewHistorical Valuation Gives a More Accurate Multiple

Bla

ckfish

Pre-Blackfish Average: 10.4x

Current:

8.8x

Historical EV/EBITDA Multiple (2013-2015)

Historical P/E Multiple (2013-2015) B

lackfi

sh

Pre-Blackfish Median: 48.4x

Current:

31.1x

Average

Median

Resulting Target Price: Resulting Target Price:

$23.41 (+17%) $27.09 (+36%)

Financial OverviewSummary of Valuation Methods and Target Price

Summary of Valuation Results

Current Price: $20 +94%

+85%

+35%

+17%

+11%

-13%

Average TP $28

(+40%)

Considerations

ConsiderationsCompetitors are a Primary Risk Factor for SEAS

$147 $147 $105 $85

The $100 psychological barrier of many Orlando theme parks should reduce their

ability to compete with Seaworld, the only remaining sub-$100 theme park

ConsiderationsHigh Leverage is Not a Concern Due to Strong Cash Flow

Capital Structure

Equity580mn

Debt1.56bn

Operating Cash

Flow$260m

n

Interest

$29mn

CFO vs. Interest Comparable Balance Sheet Health

D/EInterest Coverage

Seaworld has relatively low debt compared to other

theme parks and has industry-leading ability to meet its interest payments

Investment ThesisThe “Blackfish” Expose Has Scared off Investors…

-40%

TP $28

LTM Stock Price Chart for SEAS

‘

Investment Thesis…but not Theme Park Customers

Bla

ckfish

R

ele

ase

-1%

-13%

+0.3%

-5.2%

-2.2%

Park attendance has taken a hit, but

nowhere close to the 40% drop that’s priced

inSeaWorld Quarterly Attendance (000s)

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q42012 2013 2014

Investment ThesisAirline Ticket Sales Show Customers Are Loving Cheap Oil

Oil p

lum

mets

+14%

+8% +2%

Cheap plane tickets mean everyone booking

a vacation

US Airline Ticket Sales ($mns)

SeaWorld Entertainment (SEAS)Blackfish Scared Investors, but Not CustomersLONG, TP $28 (+40%)

RESEARCH TEAM

Parker Kim, Senior DirectorVishal Bhat, Senior AnalystNancy Liu, Junior AnalystPatches Chen, Junior AnalystNathan Kim, AnalystAustin Partridge, Analyst

DO NOT WRITE OVER, TEMPLATE SLIDEDON’T EVEN THINK ABOUT IT MISTER