After a few rough years, the travel industry is showing signs of a return to normalcy.
Strong evidence of that can be found in the recent second-quarter results of lodging rivals Airbnb (ABNB), the dominant player in the so-called “alternative accommodation” segment, providing an online platform for independent owners to rent their properties for short- and long-term stays, and Marriott International (MAR), the largest hotel company in the world.
Both industry leaders are benefiting from the comeback in global travel as borders reopen, testing requirements end, tourism surges, flexible work arrangements flourish, business travel picks up, and travelers return to cities.
Airbnb reported its most profitable second quarter in its history and a 73% increase in revenue and gross booking volume from the same quarter in 2019, a year before the pandemic became a factor. Its board of directors approved a US$2 billion share buyback program based on the strength of its balance sheet and cash flow. Marriott reported that its worldwide revenue per available room, or revPAR, a standard industry financial gauge, surpassed 2019 levels in the most recent June quarter and its average daily rate per room jumped 7% above 2019 levels.
Which Is Better Positioned, Airbnb’s Stock or Marriott Shares?
Airbnb, with its 4 million hosts and 6 million listings, recovered faster during the pandemic as people fled cities for suburbs and rural areas easily reached by cars to maintain social distancing. It launched a successful initial public offering in December 2020, as the pandemic was raging. Yet, current conditions now appear to be tilting in Marriott’s favor as travelers take to the skies for faraway destinations, and as group travel for business meetings and conferences accelerates. An added plus for investors: Marriott stock represents better value, according to Dan Wasiolek, Morningstar senior equity analyst.
Marriott owns 30 hotel brands from the luxury Ritz-Carlton, St. Regis, and W Hotel chains to the more economical Courtyard and Four Points by Sheraton and its trademark Marriott brand. At the end of 2021, the hotel group’s worldwide system consisted of nearly 8,000 properties and roughly 1.48 million rooms in 139 countries and territories. Its loyalty program Marriott Bonvoy boasted 160 million members at the end of 2021. And it dipped its toes into Airbnb’s territory with its Homes & Villas private home rentals.
Wasiolek recently lifted his fair value estimate on 4-star-rated Marriott’s stock to US$178 a share from US$164 based on stronger travel demand, the persistence of remote work, and the increase in flexible worker arrangements. His fair value estimate places a multiple of 15 times 2023 enterprise value/EBITDA, or earnings before interest, taxes, depreciation and amortization, on the stock, a level it has traded at historically. Currently, Marriott shares trade at 14 times EV/EBITDA.
In contrast, Wasiolek lowered his fair value estimate on 3-star Airbnb’s stock to US$113 a share from US$116 based on signs that demand is beginning to moderate from the outsize levels seen during the pandemic. Airbnb cautioned investors that it expects its nights booked in the third quarter, its busiest season, to grow at the same pace they did in the second quarter, below Wall Street’s forecasts. It also said it expects modest acceleration in gross booking values in the third quarter versus last year’s similar period on “slightly higher” average daily rates.
Wasiolek’s new estimate implies a multiple of 23 times EV/EBITDA compared with the 24 times at which the shares now trade.
“It’s a great company with superior growth, but it’s more richly priced,” Wasiolek says.
While the stocks have risen in the past month, they are down on the year and remain well off their 52-week highs. At a recent price of US$164, Marriott’s stock is flat on the year. Airbnb stock price was at US$124.50 and has plummeted 25.32% year to date.
“The stocks are stuck in the mud,” Wasiolek says. “The market is fearful that inflation is going to hurt demand and that this summer will be a peak.”
Travel Demand Will Continue
Investor concerns are misplaced, says Wasiolek, and statistics aren’t bearing them out.
“I think there is a lot of pent-up demand. We are not yet back to levels of long-term growth demand that existed prior to the pandemic and the Russia-Ukraine war,’’ says Wasiolek. "An economic slowdown could pause or mitigate growth but I don’t think we are going to see negative growth even if there is a recession.”
Marriott’s chief executive Anthony Capuano expects the strong travel growth trends to continue.
“We have not seen signs of leisure travel abating” in the U.S. and Canada, Capuano said in commentary accompanying the hotel chain’s second-quarter results. He noted that leisure room nights in the region were more than 15% higher than in the second quarter of 2019, and average daily rates “meaningfully” outpaced prepandemic levels. Europe, he said, also posted revPAR levels in the June quarter that exceeded those for the same period in 2019, “in large part due to the return of international visitors.”
Supporting its upbeat industry outlook, Marriott issued guidance for third-quarter earnings per share of US$1.59 to US$1.69 versus Wall Street estimates of US$1.59 and full-year earnings per share of US$6.33 to $6.59 compared with estimates of US$6.01.
The company bought back 1.9 million shares of common stock in its second quarter for US$300 million at an average price of US$157.38 per share. Through July 29, the company has repurchased 2.9 million shares for US$448 million at an average price of US$152.99 per share. Marriott also reinstated a dividend this year, US$1.20 a share on an annualized basis, after omitting its prior payout following the onset of the pandemic in March 2020 to conserve capital.
STR, which tracks the industry and whose services include data and analytics, says the positive outlook for the overall lodging group is warranted despite the skepticism that abounds.
“Our contacts continue to tell us of a solid to strong fall ahead, led by groups,’’ STR said in a recent report. "There are also some that point to pent-up business demand filling in the space left by the summer leisure traveler. Despite the increased recession focus, demand remains on solid footing with levels at a good place historically. None of us have a crystal ball, but at this point, the rhetoric is not aligned with actualized demand.”
