Description

Vail Resorts in our opinion is a quasi-geographic monopoly, and has been written up only once by valueinvestor03, in 2018. Since then, the stock’s total return inclusive of dividends is roughly flat, while the mid-cap benchmark is up roughly +60%, & the SPX is up 96%. It has under performed all benchmarks considerably over the past 5+ years, and we believe that is about to change in short order. When Vail Resorts was first written up on VIC in 2018 at $254 it owned and operated 18 mountain resorts, fast forward to today, Vail owns/operates 41 strategically located destinations and has continued to add to its expanding platform under the EPIC pass with its recent expansion into Switzerland. Since 2018, adj. EBITDA & topline revenue is up over +50%, while the forward EV/EBITDA multiple is ~7-8 turns lower. Leverage during this time has increased due to all the acquisitions over the years, but not excessively so, currently 2.55x on ‘25E (EOY 07/31/25), versus 1.82x on forward #s from 2018. Overall, the management team has done a great job of digesting these acquisitions, all while encountering significant disruptions to the business in the last 5+ years.

Key thoughts on Thesis:

·         Vail Resorts with its EPIC season pass product is likely 25-35% under priced relative to its largest peer Alterra Mountain’s IKON pass, pricing will likely get more aggressive in the next few years as Vail continues to offset higher wages from the ’22/’23 season.

·         Vail is trading at close to trough multiples on what we believe are artificially low profits due to the lack of pricing—Vail Resorts has kept season passes essentially flat on pricing for the past 6 years.

·         Vail is a high-quality compounder with a quasi-monopoly in higher quality ski resort experiences, with the top 5 most visited ski resorts in North America

·         Even if global warming continues to shorten the ski season, we think that Vail has the ability to drive pricing and overall margins in the next few years. Vail Resorts properties are also among the highest elevations properties relative to peers, insulating against some of the global warming impacts.

Current Company Overview/Strategic Positioning:

The company, formed in 1997, operates through three main segments: Mountain, Lodging, and Real Estate. The Mountain segment, contributing a significant 88% to net revenue, operates 41 world-class destination mountain resorts and regional ski areas, offering an extensive array of amenities such as ski school, dining, and retail/rental operations.

The revenue in the Mountain segment is generated through the sale of lift tickets, pass products, and various guest amenities, catering to a diverse clientele with an attractive demographic profile. With a strategic focus on year-round operations, the Resorts provide a comprehensive experience, including winter activities like skiing and snowboarding, and summer activities such as mountain biking and hiking.

The company's key resorts, including Whistler Blackcomb, Breckenridge, Park City, Vail Mountain, Keystone, Beaver Creek, and others, consistently rank among the most visited in the United States. Notably, Vail Resorts has expanded its reach to international markets with the acquisition of Andermatt-Sedrun in Switzerland, marking its first owned and operated resort in Europe.

Furthermore, Vail Resorts has a strong regional presence, with ski areas in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Australia. This strategic distribution allows the company to connect with a broad array of guests, driving advance commitment pass product sales.

The financial strength of Vail Resorts is underscored by its successful operations and ownership of premier luxury hotels and condominiums under the RockResorts brand. The Lodging segment, contributing 12% to net revenue, complements the Mountain segment by offering a collection of high-end accommodations.

In addition to the robust performance in the Mountain and Lodging segments, the Real Estate segment focuses on owning, developing, and selling real estate in and around resort communities, providing an avenue for further revenue generation.

Vail Resorts demonstrates several competitive strengths within the ski industry, setting it apart from its peers. The company operates in a market with approximately 760 ski areas in North America, with 480 in the U.S., collectively attracting around 85.8 million skier visits during the 2022/2023 North American ski season. Vail Resorts' North American Resorts alone accounted for approximately 20.0% of these visits, indicating a significant market share.

Key Competitive Advantages:

1. Strategic Resort Portfolio: Vail Resorts owns and operates some of the most iconic destination mountain resorts in key ski destinations, including Colorado, Utah, Lake Tahoe, the Pacific Northwest, British Columbia, Canada, the Northeast, Midwest, Mid-Atlantic regions, and even internationally in Australia and Switzerland. The company's resorts are strategically positioned near major U.S. population centers, providing convenient access for a broad array of guests.

2. Diversified Revenue Streams: The company's revenue streams are diversified, encompassing the Mountain, Lodging, and Real Estate segments. The Mountain segment, contributing 88% to net revenue, includes ancillary services such as ski school, dining, and retail/rental operations. Lodging and Real Estate segments complement the overall revenue mix. The locations are also geographically diverse, with concentrations in NW, Colorado/Utah, NE, Australia, and now Switzerland. This enables less cyclicality in regional snow affecting the outcome of an entire year.

3. Data-Driven Marketing Analytics: Vail Resorts employs data-driven marketing analytics and personalized marketing capabilities to target increased penetration of ski pass products. This approach provides guests with a strong value proposition, encouraging them to commit to skiing or riding at Vail Resorts' destinations early in the season.

4. Comprehensive Resort Experience: Vail Resorts offers a comprehensive resort experience with a focus on providing high-quality service at every touch-point of the guest journey. The company's resorts are known for their exceptional mountain experiences, world-class integrated base resort areas, and a commitment to customer satisfaction.

5. Strategic Capital Investments: The company strategically invests in capital improvements, including lift services, terrain parks, and snowmaking systems. These investments aim to enhance the overall guest experience, streamline skier traffic, and ensure exceptional snow conditions, particularly in regions with less natural snowfall.

6. Innovative Technology: Vail Resorts leverages technology to enhance the guest experience. The My Epic mobile application (My Epic App) allows guests to purchase pass products, access resorts, and provides real-time information on trail and lift status. The company also plans to introduce "My Epic Gear," a membership program for choosing and delivering ski and snowboard gear.

7. Pass Product Dominance: The company's pass products, including season passes and Epic Day Passes, contribute significantly to its revenue. These pass products drive strong customer loyalty, mitigate weather-related risks, and attract new guests to the resorts. Pass products generated approximately 61% of total lift revenue and 73% of total visitation for Fiscal 2023.

8. Global Expansion and Alliances: Vail Resorts has expanded its global presence through strategic acquisitions, including properties in Europe (Andermatt-Sedrun in Switzerland) and the U.S. (Seven Springs Resorts). Additionally, long-term season pass alliances with third-party mountain resorts worldwide enhance the value proposition of its pass products.

The company operates several resorts on land contracts with governmental authorities, and the terms vary based on the location. Each land contract involves unique terms, such as lease durations, fees, compliance requirements, and potential amendments, reflecting the diverse regulatory frameworks of the respective locations.

The rarity of land contracts, especially with the U.S. government, lies in the nature of the agreements and the stringent regulatory processes involved. Here are key aspects contributing to their rarity:

1. Limited Availability of Public Lands:

   • Ski resorts operating on U.S. Forest Service lands require Special Use Permits (SUPs).

   • Public lands available for commercial use are limited, and obtaining approval for such permits is a competitive and challenging process.

2. Stringent Regulatory Oversight:

   • The U.S. Forest Service operates under the 1986 Ski Area Permit Act and subsequent amendments like the Ski Area Recreational Opportunity Enhancement Act.

   • The Forest Service has authority over the location, design, and construction of improvements, requiring strict adherence to regulations.

3. Long-Term Commitments:

   • Land contracts with the U.S. Forest Service involve long-term commitments, typically requiring periodic renewal of Special Use Permits.

   • Resorts may need to go through a comprehensive approval process, including Master Development Plans (MDPs) for each ski area, demonstrating their commitment to sustainable growth.

4. Environmental Considerations:

   • The Forest Service's responsibility includes managing national forests for ecological sustainability.

   • Ski resorts operating on public lands must demonstrate environmentally responsible practices and comply with guidelines specified in Forest Plans.

5. Limited New Developments:

   • The difficulty in obtaining governmental approvals for new developments on public lands limits the establishment of new destination ski resorts.

   • The rarity of new developments over the past 40 years contributes to the competitive advantage of existing resorts.

6. Consistent Regulatory Compliance:

   • Resorts must consistently comply with environmental, safety, and operational regulations outlined in their SUPs.

   • Any proposed changes or amendments to these permits undergo thorough reviews, ensuring alignment with Forest Plans and the National Environmental Policy Act (NEPA).

7. Public Interest Considerations:

   • The U.S. Forest Service has the authority to terminate a SUP if it determines termination is required in the public interest.

   • However, the rarity of such terminations over the opposition of the permit holder indicates the stability of these agreements.

In summary, the rarity of land contracts with the U.S. government for ski resorts reflects the limited availability of public lands, the rigorous regulatory framework, and the long-term commitments and responsibilities associated with operating on these lands.

Transition of the Day Pass to Season Pass:

The duopoly between Vail Resorts and privately owned smaller rival Alterra (owned by KSL Capital Partners & Henry Crown & Co.) has resulted in a continued consolidation of the North American ski market over the past 15 years. Vail Resorts and KSL/Alterra by far have made the most acquisitions and tuck-ins in the space. Further consolidation of the space will likely be limited given the scarcity of high-end resorts available, but there is likely to be continued interest in smaller deals that continue to expand the respective platforms.  

The EPIC and Alterra’s IKON season pass represents approximately 77% of the North American season pass market. If you want to ski for more than 4 days at one of the top resorts in North America, chances are you will get a ski pass from one of the two main providers.

Vail Resorts has been the initiator in transitioning single ticket sales to more season passes through various strategies over time, including dynamic pricing, locals ski passes, single-day tickets, 2 & 3 day passes, weekly passes, and the unlimited EPIC passes. Since 2008, when season pass sales started ($78m), season pass ticket sales have increased at a +17% CAGR, while individual lift tickets have continually lost share, going from 65% of the mix (Ski visits) in 2008 to only ~28% of the mix in ’23. The reasoning behind this is two-fold, historically Vail Resorts has been highly exposed to the cyclicality of the snow season. When there was an exceptionally good snow season it was a big boom for the stock, and when there was a poor snow season the stock/financials suffered accordingly. Deploying capital and continually investing in the ecosystem proved difficult from a planning perspective due to the cyclicality in good and bad ski seasons. By enabling the EPIC pass Vail Resorts has a good visibility on pass revenues by early December, when they typically stop selling season passes.

Source: Barclays

Source: Barclays

To encourage customers to switch from individual ticket sales to season passes they’ve done it through a myriad of strategies. For instance, we estimate that individual ski ticket prices have increased at roughly around 9%+ CAGR over the past 17 years. To give an example of the extreme divergence in EPIC pass prices vs. single day passes, Breckenridge for the 06/07 season was charging $57 vs. today’s Breckenridge day pass pricing of ~ $245 (+ fees; same day $259). The day pass prices are dynamic, so this is not completely apples to apples, but it gives you an idea of the price increase divergences. The annual CAGR of the day pass is roughly 3x the price increase of the EPIC pass. Also, Vail Resorts limits the amount of day passes for peak dates and/or peak conditions, so for example if there is a big system that dumps 3 feet of powder on the slopes and you would like to get a day pass for those days, chances are the individual tickets will be sold out. So basically, if you ski more than 3 days (4-day pass $924) per year there is excellent value in the EPIC pass from a cost/benefit ratio.

While Vail Resorts EPIC pass strategy is to garner adoption more than being aggressive on pricing, we think there is a large delta between what they could theoretically charge and where IKON has positioned themselves relatively given the quality premium for Vail Resorts. For the past 15 years the EPIC pass prices have only increased at a +3% annual CAGR, and over the past 5 years, Vail has essentially kept the EPIC pass prices increases flat at around $900. On the other hand the IKON passes have gone up by more than 5.2% over the last five years.

Alterra in terms of quality is a distant second but has a base rate on season passes with IKON at a large premium to EPIC, the adult pass for IKON has a base rate of $1,159 vs. the EPIC pass of only $909. Both passes have some exclusions on peak resorts as far as the amount of days one can visit, but overall the Vail Resorts offering is significantly more compelling than Alterra’s mix of owned resorts and partner locations. We think Vail Resorts has significant captive pricing power due to non-existent price increases. Overall, we believe that Vail Resorts EPIC pass is likely underpriced by 25-35% versus the IKON pass, and Vail will likely start extracting more of the pricing in the next 1-2 years to help offset the higher wages hit they took on in 2022/23.

Source: Parks & Trips

Source: Barclays

Valuation:

Summary:

Vail Resorts has seen its stock under perform benchmarks significantly over the past 5+ years but is poised for a turnaround. The transition from day passes to season passes, driven by Vail's EPIC pass strategy, has been successful, indicating significant pent-up pricing power potential. While Vail has maintained flat EPIC pass pricing over the past 5 years not even keeping up with U.S. inflation, IKON passes have seen steady increases, positioning Vail to capitalize on its quality premium. In summary, Vail Resorts represents a compelling investment opportunity with strong growth prospects driven by its market dominance, strategic positioning, and pricing power potential. From 2012/2013 season to the 2018/2019 season, annual season pass prices increased by roughly 5.31% on average. This corresponded to on average low double-digit topline growth (2013-2019), and a 52% CAGR on profit growth during that time span. Based on these factors we think Vail Resorts is under-earning substantially, and once it becomes more apparent that pricing is going higher, we think this stock has significant upside from these multi-year trough levels.

** A great conversation on Alterra of the competitive dynamics & characteristics of the NA ski market with the CEO of KSL Capital Partners, Eric Resnick, also a former VP of Vail Resorts. https://www.capitalallocators.com/podcast/ski-golf-and-vacation-investing-at-ksl/

Catalyst

More realistic pricing in the upcomming years + multiple expansion & a better than average snow season