After a difficult few years, the travel industry is showing signs of a return to normalcy.
Strong evidence of this can be found in the recent second quarter results of accommodation rival Airbnb (ABNB)the dominant player in the so-called “alternative accommodation” segment, offering an online platform for independent owners to rent out 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 rebound in global travel as borders reopen, testing requirements end, tourism grows, flexible work arrangements flourish, business travel picks up and travelers return to cities.
Airbnb reported the second most profitable 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 $2 billion share repurchase program based on the strength of its balance sheet and cash flow. Marriott reported its worldwide revenue per available room, or revPAR, a standard industry financial measure, exceeded 2019 levels in the most recent June quarter and its average daily room rate rose 7% over levels of 2019.
Which is better positioned, Airbnb stock or Marriott stock?
Airbnb, with its four million hosts and six million listings, rebounded more quickly amid the pandemic as people fled cities to suburbs and rural areas easily accessible by car to maintain social distancing. It launched a successful initial public offering in December 2020 as the pandemic raged. However, current conditions now appear to be tilting in Marriott’s favor as travelers take to the skies for far-flung destinations and as group travel for business meetings and conferences accelerates. An added plus for investors: Marriott shares represent better value, according to Dan Wasiolek, senior equity analyst at Morningstar.
Marriott owns 30 hotel brands from the luxury hotel chains Ritz-Carlton, St. Regis and W to the more economical Courtyard and Four Points from Sheraton and its Marriott brand. At the end of 2021, the hotel group’s worldwide system consisted of nearly 8,000 properties and approximately 1.48 million rooms in 139 countries and territories. Its Marriott Bonvoy loyalty program boasted 160 million members at the end of 2021. And it dipped its toes into Airbnb territory with Homes & Villas private rental homes.
Wasiolek recently raised his fair value estimate for shares of 4-star Marriott to $178 a share from $164, based on stronger travel demand, the persistence of remote work and the rise of flexible arrangements of workers. His fair value estimate puts a multiple of 15 times 2023 enterprise value to EBITDA, or earnings before interest, taxes, depreciation and amortization per share, a level at which he has historically traded. Marriott stock currently trades at 14 times EV/EBITDA.
In contrast, Wasiolek lowered his fair value estimate for 3-star Airbnb stock to $113 a share from $116, based on signs that demand is starting to ease from the huge levels seen during the pandemic. Airbnb warned investors that it expects its nights booked in the third quarter, the busiest season, to grow at the same rate as in the second quarter, below Wall Street forecasts. He also said he expects a modest acceleration in gross booking values in the third quarter versus the same period last year with “slightly higher” average daily rates.
Wasiolek’s new valuation implies a multiple of 23 times EV/EBITDA compared to the 24 times the stock is currently trading at.
“It’s a great company with superior growth, but at richer prices,” says Wasiolek.
While stocks have rallied in the past month, they are down for the year and remain well off their 52-week highs. At a recent price of $164.00, Marriott shares are flat on the year. Airbnb’s stock price was $124.50 and is down 25.32% year-to-date.
“Stocks are stuck in the mud,” says Morningstar’s Wasiolek. “The market fears that inflation will hurt demand and that this summer will be a peak.”
Demand for travel will continue
Investors’ worries are misplaced, Wasiolek says, and the statistics don’t bear them out.
“I think there are a lot of pent-up demands. “We have not yet returned to the levels of long-term growth demand that existed before the pandemic and the Russian-Ukrainian war,” says Wasiolek. “An economic slowdown could halt or dampen growth, but I don’t think we’ll see negative growth even if there’s a recession.”
Marriott CEO Anthony Capuano expects strong travel growth trends to continue.
“We have seen no signs of a slowdown in leisure travel” 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” exceeded pre-pandemic 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.”
Backing its upbeat industry outlook, Marriott issued guidance for third-quarter earnings per share of $1.59 to $1.69 versus Wall Street estimates of $1.59 and full-year earnings per share of $6.33 to $6.59 compared with estimates of $6.01.
The company bought back 1.9 million shares of common stock in its second quarter for $300 million at an average price of $157.38 per share. As of July 29, the company has repurchased 2.9 million shares for $448 million at an average price of $152.99 per share. Marriott also reinstated a dividend this year, $1.20 per share on an annualized basis, after waiving the previous payout after the pandemic began in March 2020 to preserve capital.
STR, which tracks the industry and whose services include data and analytics, says the positive outlook for the overall housing group is warranted despite skepticism abounding.
“Our contacts continue to tell us of a strong to strong decline ahead, led by groups,” STR said in a recent report. “There are also some that point to pent-up business demand filling the gap left by the summer leisure traveler. Despite the growing focus of the recession, demand remains on a solid footing with historically good levels. None of us have a crystal ball, but at this point, the rhetoric doesn’t match the actual demand.”