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These 3 Stocks Could Benefit From Deals With Saudi Arabia

Danny Vena, The Motley Fool

The Kingdom of Saudi Arabia is trying to shake a Western image dominated by oil and camels and forge meaningful business ties with countries like the U.S., as part of a long-term plan to diversify its economic interests and reduce its reliance on the oil that created the Kingdom's wealth. 

The plunge in oil prices that began in mid-2014 sent prices from over $110 per barrel to about $30 per barrel by early 2016. This sent the Kingdom, which previously relied heavily on petroleum products for the bulk of its financial well-being, looking for ways to revamp its economic infrastructure. These changes have resulted in a number of significant opportunities for U.S.-based companies, particularly since 70% of the Saudi population of 32 million is under the age of 30.

With that in mind, three companies that could reap enormous benefits from deals with the Kingdom are AMC Entertainment Holdings, Inc. (NYSE: AMC)The Walt Disney Company (NYSE: DIS), and Microsoft Corporation (NASDAQ: MSFT).

Camels walking past oil rigs at sunset.

Saudi Arabia is trying to change its image in the West. Image source: Getty Images.

A cinematic first

The most immediate beneficiary of these changes is AMC. The theater chain, which is the largest movie exhibitor in the world, announced this week that it had reached a ground-breaking deal to open Saudi Arabia's first theater later this month. 

Late last year, the conservative society ended a 35-year ban on movie theaters, which Saudi Arabia's minister of culture and information called "a watershed moment in the development of the cultural economy in the Kingdom." 

AMC Theater marquee.

Image source: AMC Theaters.

AMC said it expects to open 40 theaters in 15 Saudi Arabian cities in the next five years and as many as 100 cinemas in 25 cities by 2030. AMC estimates the Kingdom could generate up to $1 billion in annual box office within five years, and AMC believes it could achieve as much as a 50% market share. 

The happiest place on earth

Another beneficiary of the new openness is Disney. Saudi Crown Prince Mohammed bin Salman sat down with Disney CEO Bob Iger to discuss the substantial opportunity that exists in the Kingdom, including a significant existing demand for all things Disney. 

The company was singled out for the recent visit by Saudi officials, who expressed interest in "building a strategic partnership ... that include[s] theme parks, resorts, live shows, and everything in between," according to a spokesperson for Saudi Arabia's General Entertainment Authority. At this point, no decision has been announced. The Kingdom is already working on agreements to import a number of live productions like Disney on Ice, Disney Live, and Marvel Experience.

Disneyland Castle at night.

Image source: Author.

It's also notable that another member of the Saudi Royal Family, Prince Alwaleed bin Talal, has a long-standing relationship with the House of Mouse, having invested large sums over the years in Disney's then-faltering Disneyland Paris.

Last year, parks and resorts was Disney's fastest-growing business segment, increasing 14% year over year and contributing 26% of the company's operating income. Disney currently has theme parks in California, Florida, Paris, Hong Kong, Shanghai, and Tokyo. Another location in Saudi Arabia would certainly boost its growth.

Opening doors and Windows

Saudi Crown Prince bin Salman met with Microsoft CEO Satya Nadella after earlier sitting down with founder Bill Gates. They discussed the ongoing technological modernization of the Kingdom. The two talked about computer training, national standards, knowledge-based innovation, and digital transformation. This isn't the first meeting between the pair. 

In 2016, Nadella met with the Crown Prince and agreed to train young Saudi citizens and support the Kingdom in its "ambitious digital and knowledge-based innovation transformation." The company also agreed to provide a team of experts to set up operational programs and systems for the royal court.

Microsoft logo and sign outside the company campus.

Image source: Microsoft.

Microsoft has since sponsored a number of events hosted by company executives that cover the latest in digital innovation and cloud technology. While no specific new deal was mentioned, it isn't difficult to see how Microsoft benefits from this ongoing collaboration, as the operating systems and business software Saudis are training to use almost certainly bear the Microsoft logo. This will likely result in future business and won't hurt the company's cloud aspirations, either, though how much is at stake would be difficult to determine.

The land of opportunity

These moves are all part of Saudi Arabia's Vision 2030 initiative, part of a plan to transform the economy from its oil-dependent background, embrace technology, and open the Kingdom to greater international trade and commerce.

This new openness and willingness to embrace Western businesses may result in future opportunities, and these three companies are at the forefront of those changes. Keep an eye out for others.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Danny Vena owns shares of AMC Entertainment Holdings and Walt Disney and has the following options: long January 2019 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.