Hyatt posted a mixed set of Q2 2024 results, due to the timing of easter as well as some renovations at its major resorts. The continued impact of the Maui wildfires also hurt the company's performance. While revenue remained roughly flat year-over-year at $1.703 million, missing consensus estimates, earnings beat estimates coming in at $1.53 per share.
Hyatt Hotels completed the acquisition of Apple Leisure Group to expand its management & franchise business. As a part of the asset-light strategy, the company has been divesting its owned properties and entering into management service contracts. The company has extended its divestiture plan to repay the debt raised to fund this acquisition.
Nearly 80% of Hyatt's earnings will likely be contributed by the management & franchise business by 2024. The company estimates that 76% of its earnings over 2023 came from asset-light businesses.
The M&F segment earns fees on long-term management or franchise agreements with third-party property owners. Thus, low occupancy rates due to the pandemic pose less of a downside risk to the company's long-term valuation.
Below are key drivers of Hyatt Hotels value that present opportunities for upside or downside to the current Trefis price estimate for Hyatt Hotels:
For additional details, select a driver above or a division from the interactive Trefis split for Hyatt Hotels at the top of the page.
Hyatt Hotels is a hospitality company that offers full-service hotels and resorts, select-service hotels, all-inclusive resorts, and other properties, including timeshare, fractional, and other forms of residential and vacation units. The company also offers distribution and destination management services via its subsidiary ALG Vacations. Mr & Mrs Smith is the company's boutique and luxury global travel platform. As of March 2024, Hyatt's hotel portfolio included 1,341 hotels, comprising 323,405 rooms.
We believe that the management of third-party-owned hotels is the primary source of value for Hyatt because:
The profitability of managed and franchised hotels increases significantly if we ignore reimbursement costs. Moreover, for third-party-owned hotels, the capital expenditures are borne by the property owner. On the contrary, Hyatt's owned property business is capital-intensive due to the high costs involved in developing and maintaining new properties.
Hyatt Hotels has a wide presence on the globe. It operates in 78 countries and most of the populous urban centers worldwide. These properties also provide a platform to expand in other markets and geographies. The management and franchising model works well for most hotel players, and they focus on expanding the same. Thus the third-party-owned hotels will continue to drive the growth for the company in the foreseeable future.
Nearly 80% of Hyatt's earnings will likely be contributed by the management & franchise business by 2024, which is largely fee-based. The company estimates that 76% of its earnings over 2023 came from asset-light businesses. This should bode well for the company's cash flows and margins in the long run.
The rapid expansion of social media has significantly enhanced the relationship between the hospitality industry and its guests. The reputation, service quality, staff, etc., are determined through various social media platforms, including online travel forums and customer-led ranking sites such as TripAdvisor.
According to a report by a leading hotel chain, brands are mentioned 3.3 billion times in 2.4 million online conversations in the U.S. daily. The report also mentioned that over 33% of the people surveyed consider comments on TripAdvisor to be of great importance in selecting a luxury hotel. This is one of the reasons why the hotel sector is investing heavily in new technologies and building an online social media strategy. InterContinental's 2014 Trends Report states that the rise of technology-led personalization helps shape and tailor guest experiences.
The recovery in global economies and sophisticated financial markets of emerging economies will drive international visitation. The U.S., in particular, will benefit from the Discover America campaign, which will drive the average guest spend as well as the occupancy levels of the hotels. Leisure demand from other countries, such as China, will stimulate global demand for hospitality. The globalization of travel will prove to be a massive force for the hospitality industry. Hyatt Hotels will benefit from its diverse brands and properties spread across the globe.
