Because COVID-19 was such a gut punch to the industry, travel stocks have been one of the most difficult areas to invest in in recent years.
Travel volume dropped to near nothing almost overnight and has yet to completely recover.
While the American Travel Association predicts that pre-pandemic travel volumes will not fully return until 2024, these three equities are defying the trend.
Airbnb Has Turned a Corner
With its record-breaking fourth-quarter profits announcement, Airbnb (NASDAQ: ABNB) may have just turned the corner.
After three agonizing years of pandemic problems, the firm reported one of its strongest quarters ever.
The largest short-term rental company broke Wall Street forecasts on Tuesday, nearly doubling consensus profits estimates and reporting its first profitable year in history.
The company reported earnings of 48 cents per share (25 cents projected), strong margin gains, and revenue growth of 24% year over year, which was in line with expectations.
Wall Street received the report well, with many analysts at firms such as Citigroup and Wells Fargo raising their price targets.
The company has gotten significantly more efficient, which is more intriguing than merely financial measurements.
While its staff headcount is 5% lower than before the pandemic, its revenue is 75% higher.
Moreover, as a result of overall stronger conditions, the corporation is going on offense, having repurchased $1.5 billion of its stock in the last five months.
Yet, the question of whether Airbnb can sustain demand, as various cleaning and booking fees become a sticking point on the platform has recently arisen, particularly during a difficult period for the travel sector.
The company’s Q4 indicators, on the other hand, show solid demand across the board, showing a high degree of consumer confidence.
Year on year, both the gross booking value and the number of nights stayed increased by 20%.
Following a difficult year, in which the company’s shares dropped 50%, 2023 is off to a promising start, with the fourth-quarter results propelling the stock above a number of barrier levels.
MGM Resorts International Bringing the Chips to Macau
MGM Resorts (NYSE: MGM), the casino and resort operator that owns and operates the Bellagio in Las Vegas, is well positioned to benefit from China’s huge reopening of its Macau gaming properties.
Prior to the pandemic, Macau was a gambling destination with six times the gaming revenue of Las Vegas.
According to recent government reports, casino income in Macau increased 82% in January, compared to the 36% prediction.
Yet Macau’s expansion is just getting started, with lots of opportunities ahead.
According to official government reports, Macau’s gambling revenue in 2023 will be less than half of what it was before COVID.
MGM is uniquely positioned to capitalize on the opportunity in a reopened Macau, since JP Morgan estimates that MGM has a 16% market share in the Macau casino business.
Furthermore, the Macau government recently extended MGM’s casino license for another ten years.
Macau revenue will flow to the bottom line, as MGM’s CEO William Hornbuckle remarked, “MGM China’s combined properties are the highest earnings companies within our company” during the company’s most recent earnings call.
In terms of earnings, MGM reported advances in other key companies in their most recent earnings release, boosting the stock by 7%.
The company outperformed earnings and revenue projections, demonstrating remarkable growth in its Las Vegas segment and aiming for profitability in its BetMGM sportsbook later this year.
More Macau casino income statistics will be released by the local authorities to assess how the reopening trend is progressing.
Hyatt Trims Excess Weight
The Hyatt Hotels (NYSE: H) is a luxury hotel and resort operator that provides its customers with a greater level of customized attention.
Historically as one of the top travel stocks, the company has run an asset-heavy operation in comparison to its counterparts, owning or leasing a larger portion of its facilities.
However, in recent years, the company has adopted an asset-light strategy, prioritizing management and franchise fees over earnings from owned/leased hotels.
Because there is a natural limit to how many hotels you can acquire or lease, shifting to a fee-based model makes the company more scalable.
At the same time, growing a fee-based business does not have similar constraints because you do not have to buy the property.
This strategy entailed selling capital-intensive owned assets such as the Hyatt Regency in Greenwich, CT, and instead acquiring fee-based businesses such as Two Roads Hospitality and Apple Leisure Group.
And the strategy appears to be working, as its North American fee-based business was considerably above pre-COVID levels in 2019, generating $422 million in adjusted EBITDA in 2022, up from $380 million in 2019.
With Hyatt’s focus on premium buildings, some investors wonder, “What recession?” as their consumers are unconcerned about inflation and continue to pay ever-increasing accommodation fees.
Wall Street is taking notice, as its stock is up 33% year to date and at all-time highs following Thursday’s fourth-quarter results announcement.
After multiple failed tries, the stock finally managed to firmly breach its pre-COVID resistance level of $100. With all-time highs and multi-year resistance in the rearview mirror, the bullish momentum has a decent chance of continuing.
Going ahead, the stock is firmly holding above its recent higher low, in the $108 to $110 range, which is important to the trend’s success. A convincing closure below the level will most likely deter momentum traders.
Common wisdom holds that when recession fears are high, travel stocks suffer.
Despite expected headwinds for the travel sector, three travel stocks, Airbnb, MGM Resorts, and Hyatt Hotels, have withstood the storm.
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