ABNB: Better Buy: Airbnb vs. Marriott

The COVID-19 pandemic absolutely crushed companies in the hospitality sector. As international borders were shut, travel and tourism came to a screeching halt. The economic lockdowns and business shutdowns meant people largely stayed at home and avoided crowded places.

Hotels were empty as a result, and shares of several companies lost significant market value in the first half of 2020. The encouraging vaccine results of Pfizer (PFE) and Moderna (MRNA) resulted in a market rally in hospitality stocks towards the end of 2020.

Here we look at two companies that are giants in the hotel industry and see which is a better bet right now. The two stocks are Airbnb (ABNB) and Marriott International (MAR).

Airbnb went public recently

Shares of Airbnb were publicly listed last month at a price of $68. The stock is currently trading at $143.21 which means it is trading 110% higher. Airbnb raised $3.5 billion from the IPO and is now valued at a market cap of $86 billion.

In the first nine months of 2020, Airbnb reported sales of $2.52 billion and a net loss of $697 million. Comparatively, sales stood at $2.56 billion in 2017, $3.65 billion in 2018, and $4.81 billion in 2019.

The COVID-19 pandemic has negatively impacted company sales in 2020 by 32% in the first three quarters. However, Airbnb has managed to lower costs by announcing company-wide layoffs and shifting its focus to domestic stays. In fact, the company also reported a net profit in Q3 as lockdown restrictions were eased.

Airbnb has forecast its total addressable market at $3.4 trillion giving it enough room to grow revenue at a rapid pace in the upcoming decade.

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The transition towards remote work all around the world will act as a major driver for Airbnb’s top-line growth. Potential travelers looking for a place to stay will find several options across price points which makes Airbnb one of the most dynamic travel platforms in the world.

In the last few years, the online travel platform has also expanded its portfolio to include local experiences that will attract tourists and result in incremental sales.

A legacy hotel giant

Marriott International has been a solid wealth creator for long-term investors. The stock has surged by 225% in the last 10 years. However, due to the pandemic induced sell-off, it has lost close to 15% in market value in the last year.

In the third quarter, the company’s revenue per room fell by 66% while total sales fell 57% to $2.25 billion and adjusted earnings stood at $0.06 per share. Analysts expected Marriott International to report sales of $2.23 billion and a loss of $0.08 per share in Q3.

The fourth quarter is forecast to remain subdued for Marriott given the rise in COVID-19 cases in the U.S. and Europe, as well as the travel ban on the U.K. Alternatively, the company is expected to experience pent-up demand once the vaccines are rolled out and the pandemic comes to an end in the next year.

Verdict

While Marriott has outperformed the broader markets since the start of this millennium, Airbnb’s growth prospects are too good to ignore. Airbnb has an asset-light business model which means it does not have to invest heavily in capital expenditure.

Airbnb is also nimble and could pivot easily amid the pandemic to lower the impact of COVID-19. While Marriott International stock is set to make a comeback in 2021, Airbnb is likely to outperform the hotel heavyweight due to its higher growth rates.

Airbnb is a travel disruptor that is well poised to upstage several incumbents.

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ABNB shares were trading at $145.36 per share on Wednesday morning, down $2.94 (-1.98%). Year-to-date, ABNB has declined -0.98%, versus a 0.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...