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After a few difficult years, the travel industry is showing signs of returning to normalcy.
Strong evidence of that can be found in Airbnb’s recent second-quarter results for rival accommodation. (Abnbi)A major player in the so-called “alternative accommodation” segment, it offers an online platform where independent owners can rent out their properties for short and long term, and Marriott International (honey)The largest hotel company in the world.
Both industry leaders are benefiting from a rebound in international travel as borders open, testing requirements end, tourism booms, flexible work arrangements flourish, business trips and travelers return to cities.
Airbnb reported its most profitable second quarter in its history and a 73 percent increase in revenue and total bookings in 2019, a year before the pandemic hit. The board of directors approved a $2 billion share buyback program based on the strength of its balance sheet and cash flow. Marriott said worldwide revenue per room, or revPAR, a standard industry financial measure, surpassed 2019 levels in the most recent June quarter, and the average daily rate per room rose 7 percent from 2019 levels.
Which is better, Airbnb stock or Marriott shares?
Airbnb, with its four million hosts and six million listings, recovered quickly during the pandemic as people simply fled to suburbs and rural areas by car to maintain social distancing. It launched a successful initial public offering in December 2020 as the pandemic worsened. However, as travelers take to the skies for far-flung destinations and travel in groups for business meetings and conferences, the current situation seems to be tipping in Marriott’s favor. A plus for investors: Marriott stock represents a 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 brands. In the year By the end of 2021, the hotel group’s global system consisted of approximately 8,000 properties and approximately 1.48 million rooms in 139 countries and territories. Its loyalty program Marriott Bonvoy boasts 160 million members by the end of 2021. And it has dipped its toes into Airbnb territory with private home rentals of houses and villas.
Vasiolek recently raised his fair value estimate on 4-Star-rated Marriott stock to $178, based on strong travel demand, the persistence of remote work and an increase in flexible work arrangements. Its fair value estimate trades at a historical multiple of 15 times 2023 enterprise value to EBITDA, or earnings before interest, taxes, depreciation and amortization. Marriott currently trades at an EV/EBITDA of 14 times.
In contrast, Vasiolek lowered his fair value estimate on 3-star Airbnb stock to $113 from $116, on signs that it is starting to moderate from the extreme levels seen during the outbreak. Airbnb warned investors that it expects nights booked in the third quarter, its busiest period, to grow at a faster pace than Wall Street forecasts in the second quarter. It said a slight acceleration in overall booking rates is expected in the third quarter, with average daily rates “slightly higher” than the same period last year.
Wasiolek’s new valuation implies an EV/EBITDA multiple of 23 times, compared to 24 times where the shares currently trade.
“It’s a big company with great growth, but it’s also worth more,” Wasiolek says.
Shares have risen in the past month, have fallen on the year and are holding off a 52-week high. At a recent close of $164.00, Marriott stock is flat on the year. Airbnb’s stock price was at $124.50 and is down 25.32% year-to-date.
“The shares are stuck in the mud,” said Morningstar’s Wasiolek. “The market is concerned that inflation could hurt demand and peak this summer.”
The need for travel continues
Investors’ concerns are misplaced, Wasiolek says, and the statistics aren’t helping them.
“I think there’s a lot of pent-up interest. “We have not yet returned to the level of long-term demand for growth that existed before the pandemic and the Russia-Ukraine war,” Wasiolek said. “An economic downturn may pause or slow down growth, but I don’t think we will see negative growth even with a recession.
Marriott CEO Anthony Capuno expects strong travel growth trends to continue.
“We don’t see any signs of a slowdown in leisure travel in the U.S. and Canada,” Capuno said in comments accompanying the hotel chain’s second-quarter results. Leisure room nights in the region were up more than 15 percent from the second quarter of 2019, and average daily rates “meaningfully” exceeded pre-pandemic levels. It said Europe posted revPAR levels higher than those recorded for the same period in 2019 in the June quarter, “primarily due to the return of international visitors.”
Backing its upbeat industry outlook, Marriott guided for third-quarter earnings of $1.59 to $1.69 a share, compared with Wall Street estimates of $1.59, and full-year earnings of $6.33 to $6.59 a share, compared with estimates of $6.01.
The company repurchased 1.9 million shares of common stock at an average price of $157.38 for $300 million in the second quarter. As of July 29, the company has repurchased 2.9 million shares worth $448 million at an average price of $152.99 per share. Marriott has reinstated a dividend of $1.20 a share this year after cutting a dividend in March 2020 following the outbreak of the pandemic to conserve capital.
STR, which tracks the industry and whose services include data and analytics, says that despite the skepticism, the positive outlook for the general lodging group is warranted.
“Our contacts tell us that there is a strong and strong fall ahead, led by groups,” STR said in a recent report. ”Also, some suggest filling the void left by the summer leisure traveler. Despite the intense recessionary focus, demand remains on a strong footing with historically favorable levels. None of us have a crystal ball, but at this point, the conversations aren’t aligned with actual needs.
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