Is Airbnb Really Hurting Hotels like Hyatt?

The popular theory these days is that Airbnb; and other short-term rental solutions, are hurting hotel operators like Hyatt (NYSE: H).

There are some statistics to back up that belief, but Hyatt’s financial numbers tell a different story. The only way to answer the question raised by our headline is to take a look at the statistics and the financial numbers.

The numbers provided by our friends at Statista, show that hotel operators should be very worried about short-term rental providers. Airbnb alone was offering 27,965 rentals in New York alone in September 2015. It also offered 17,967 rentals in Los Angeles and 8,790 in San Francisco.

This threatens hotel operators because the average daily rate for an Airbnb was 18.8% less than the daily cost of a hotel room in 2015, Statista estimated. Those numbers explain why Airbnb is growing so fast. What’s more threatening to the hotel industry is that the unicorn is making a lot of money.

Statista estimated that Airbnb generated $451.43 million in revenues in New York City in 2015, that number is projected to grow to $732.11 million in 2017 and $805.32 million by 2018. Keep in mind that is the income from just one city, since Airbnb now operates in hundreds of communities around the globe the actual revenues are probably far higher.

Airbnb is now worth more than Four Times as Much as Hyatt

That gave Airbnb an estimated valuation of $30 billion on June 28, 2016, Bloomberg reported. In contrast, Hyatt had an enterprise value of $7.954 billion and a market capitalization of $7.273 billion on August 23, 2016. Hyatt also reported assets of $7.706 billion and revenues of $4.416 billion on June 30, 2016.

If the valuation claims are true Airbnb is now worth more than times as much as Hyatt. These numbers also mean that Airbnb is now worth more than Marriott International (NASDAQ: MAR) which reported an enterprise value of $22.25 billion, a market capitalization of $18.60 billion on August 23, 2016; and Starwood Hotels & Resorts (NYSE: HOT) which reported a market capitalization of $13.32 billion and an enterprise value of $14.14 billion on the same day.

The only hotel operator worth more than Airbnb’s valuation was Hilton Worldwide Holdings (NYSE: HLT) which had an enterprise value of $35.51 billion and a market capitalization of $23.95 billion on August 23, 2016. Hilton reported assets of $25.85 billion and revenues of $25.85 billion on June 30, 2016.

Mr. Market now thinks that Airbnb is more valuable than some of the world’s largest hotel operators. That raises the question for investors are hotel operators like Hyatt now valuable investments because they are unfashionable with the market herd?

These companies still have a lot going for them including vast amounts of valuable real estate in some of the world’s hottest markets, but do they make money. In the case of both Hilton and Hyatt they do.

Hilton and Hyatt are Contrarian Investments

That makes these companies contrarian rather than value investments because shareholders are betting on the failure of Airbnb. Airbnb still has some serious obstacles to overcome including growing resistance from renters and local governments in many areas.

There are also many travelers that do not feel comfortable staying in somebody else’s house. Nor are cooking your own meals and doing your own laundry fun when you are on vacation or a business trip.

Hyatt’s recent numbers seem to prove that some travelers are rejecting Airbnb. It reported a slight revenue increase over the past year, revenues rose from $4.359 billion in June 2015 to $4.416 billion a year later. Hilton has also been experiencing steady revenue increases for some time, it reported revenues of $10.12 billion in June 2014, that increased to $10.99 billion in June 2015 and $11.55 billion in June 2016.

This shows us that the reports of the hotel business’s demises are greatly exaggerated but are they making money? No these companies are not making enough money for my taste.

Hilton reported a net income of $1.641 billion, a profit margin of 7.83%, a free cash flow of $234 million, and $1.401 billion cash from operations on June 30, 2016. Those numbers did not translate into much float because Hilton only had $810 million in cash and short-term investments on the same day.

Hyatt reported a net income of $163 million, a profit margin of 5.75%, a free cash flow of $141 million and $593 million in cash from operations on June 30, 2016. It also had just $691 million in cash and short-term investments on the same day meaning no float.

This explains why ycharts reported no dividend yield for either of these companies on August 17, 2016. It also shows that the only value these hotel operators have is as potential shorts for speculators.

Yes, Airbnb is a Major Threat to Hotels

Long term investors should avoid these companies company like the plague. Neither Hyatt nor Hilton seems to have the cash on hand to avoid the type of massive industry disruption an aggressive app-based competitor like Airbnb is capable of.

My suggestion would be to stay far away from the hotel business for the foreseeable future. The companies in it simply are not making enough money to counter the threat posed by Airbnb.