Comcast Eyeing a 51% Stake in Universal Studios Japan

Zacks

Leading cable MSO (multi service operator) and media and entertainment firm Comcast Corp. CMCSA foresees huge opportunities in international markets. Recently, the company announced plans of boosting its international operations through mergers and acquisitions.

In this regard, Comcast in a statement revealed that its NBC Universal division is set to acquire a 51% stake in Osaka-based Universal Studios Japan, for $1.5 billion. Existing shareholders Goldman Sachs Group Inc., MBK Partners Ltd. and others are however set to retain their minority stakes.

Notably, this 14-year-old park recently witnessed a surge in revenues and visitor figures following the addition of a $400 million Harry Potter-themed section last year. Following this, the visitor count rose 16.8% year over year to 11.8 million. Moreover, in the fiscal year ended Mar 2015, revenues from the park surged 44% year over year to JPY138.5 billion. Meanwhile, the deal with Comcast will likely lend Universal Studios Japan an enterprise value of $6.2 billion.

Theme Parks in Focus

Comcast has been focusing on its theme park business of late. Post the acquisition of the NBC Universal division of General Electric Co. GE, Comcast has gained ownership of Universal theme parks. Within the U.S., NBC Universal operates theme parks in Orlando, Florida and California.

Comcast is thus pouring in billions of dollars in its theme parks. In Orlando, the company is planning to open resort hotels and other major attractions. On the other hand, in Florida, a big waterpark will be operational in 2017 while the California theme park is undergoing a $1.6 billion extension anchored by a snow-capped Hogwarts Castle.

Moreover, Universal Parks & Resorts, a unit of Comcast, recently signed a deal with Chinese state-owned consortium – Beijing Shouhuan Cultural Tourism Investment Co. Ltd. – for the construction of a Hollywood themed park in Beijing. The joint venture (JV) will invest approximately $3.25 billion in the park which is slated to open in 2019.

Growth Story

Over the last three to four years, theme parks have been successful ventures for Comcast. In the first half of 2015, the company generated $1,424 million in revenues from this business, up 29.2% year over year and $617 million in operating cash flow, up a substantial 48.9% year over year. Currently, the theme park business accounts for roughly 10.3% of NBC Universal division’s total revenue and 19.2% of its operating cash flow.

The ongoing momentum at this business reflects strong attendance and per capita spending driven by the continued success of Harry Potter Diagon Alley in Orlando, which was opened in Jul 2014. Interestingly, this latest introduction has driven double-digit growth in park-to-park ticket sales, record attendance levels and per capita spending. On Jun 25, 2015, Comcast introduced several new attractions in its California theme park which has already been seeing double-digit attendance growth.

Bottom Line

Thus, this recent acquisition will help Comcast expand its theme park business and also cash in on the growing opportunities in the emerging markets of Japan and Asia as a whole. Notably, strength in international markets helps media firms fend off odds like declining TV ratings and advertising issues.

Nevertheless, the theme park business is gradually becoming competitive. The Walt Disney Co. DIS is leading this space while Twenty-First Century FOX Inc. FOX is gearing up to enter this market next year. In addition, smaller players like Cedar Fair L.P. and Six Flags Entertainment Corp. are also in the fray. Therefore, large investments in the theme park business are likely to help Comcast gain a competitive edge.

Comcast currently carries a Zacks Rank #3 (Hold).

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