Hospitality Stockwatch — August 2023

Authors
Arun Upneja, Ph.D. MBA, Dean, Boston University – School of Hospitality Administration
Steve Kent, Ph.D., CFA, Assistant Professor, Molloy University-School of Business

The summer is not over, even though back-to-school sales have been creeping up for weeks. But before we start to focus on the fall season ahead, let’s continue the vacation vibe to reflect on travel reinvention. In last month’s Stockwatch (July 2023) we highlighted game-changer short-term rental (STR) companies, but there are other newcomers that matter. 

Recently, public companies brought innovation to the forefront in the world of private jet bookings (Wheels Up), alternative accommodations (Sonder and Selina), the sharing economy (Inspirato), travel agency evolution (Global Business Travel Group), vacation home rentals (Vacasa), and Mark Wahlberg’s gym business (F45 Training). Some of the most innovative and unique hospitality companies came public via SPACs (special purpose acquisition companies). While the structure of how SPACs came to the market may be one factor in performance, stakeholders (investors, potential employees, customers, society, etc.) need to assess if these companies are a destabilizing force that ultimately may yield higher returns or just interesting ideas that may just be too early in their development. 

Along with short-term rental companies, shares for innovators in the hospitality tourism and travel space exhibit the same recent weak stock market performance. However, there may still be value creation. Investors can now truly get a closer look at innovation because these companies, by being public, allow us to see the fundamental drivers and challenges to their operations. We can review earnings releases, annual reports, presentations, and fillings and get a true understanding of the dynamics.

In order to be bullish or bearish on these stocks, we may have to pay closer attention to factors including the total addressable market (TAM), whether the companies really need to be on their own or could be more successful as a subsidiary of another company, and cash flow burn (how long they can operate without running out of money). Earlier SPACs, such as Playa Resorts and Lindblad, gave us insights into all-inclusive resorts and expedition cruises, respectively. When investors saw the leading hotel brands or cruise companies pursue organic or acquisition entry into these subsectors, they had a basis for comparison because they already had financial filings on these innovators and knew the factors for success. Weak performance may be casting some shade on these innovators but also helps us to see more clearly the larger issues at hand, specifically, the need for capital to fund innovation in hospitality. In fact, McKinsey and Company recently published an insightful report that in part focuses on how travel start-ups tend to be underfunded relative to other sectors (Genovese et. al, 2023).  They note that much of the funding comes in the later stages for travel start-ups with a high percentage coming from going public. Unlike other industries, the biggest hospitality players (mega hotels, cruises, casinos, airlines, etc.) do not provide money (seed) or guidance to innovators.  But maybe that will change as the more established companies see the benefit (investment appreciation and knowledge) of helping out the newer counterparts so that all of hospitality can benefit from the innovations that these newcomers bring to the industry for all stakeholders: owners, operators, and consumers.

Winners and Losers: July 2023 Performance Review

July showed a huge rally with the S&P 500 up 2.9%. The macro driver of performance is the increasingly popular view that we will achieve an economic soft landing as higher interest rates slow down inflation without causing a recession. The micro driver of performance may be strong Q2 performance from some of the largest tech companies. The information technology sector is roughly 28% of the S&P 500 so this industry may be having an outsized impact on broader stock market performance.  

We are also seeing some of the leading companies, from the over 120 we track, report strong results. Notably Royal Caribbean, Wyndham, and Hyatt have indicated a continued rebound in travel and consumer spending. In contrast, some of the major airlines were more conservative about near-term trends and also expressed concerns about slightly higher expenses including a bounce back in oil and fuel prices. Lodging REITs, gaming REITS, and amusement parks underperformed the market this past month possibly due to concerns about interest rates.

If you would like to receive the Boston University Hospitality Stockwatch data weekly, please email us at skent@molloy.edu.  We are one of the few publications offering earnings, valuation, and performance data on virtually every US public company in the world of Hospitality.   

Click here to download Hospitality Stockwatch – Current as of July 31, 2023

View last month’s Hospitality Stockwatch – July 2023