Better Buy: Airbnb vs. Marriott International

The travel industry has rebounded much faster than investors might have expected. While the stock price of Airbnb (ABNB -0.27%) and Marriott International (TUE 0.27%) have lagged this rally, recent underperformance could generate above-market returns over the next few years.

Marriott has been the best performer over the past two years, up 17%, beating Airbnb’s stock price, which is down 21%.

Given that the travel industry is expected to grow 8.5% annually through 2026, both stocks offer long-term upside, but I’d go with Airbnb. The technology-driven rental platform offers many advantages over traditional hotel chains. Here are three reasons why I think Airbnb is a superior investment.

1. Airbnb has more supply available to meet growing demand

Marriott is the leading brand in the North American hospitality industry. It had 1.5 million rooms across all its brands in the second quarter. That gives Marriott a 16% share of the U.S. hotel market, based on lodging industry data as of the end of 2021.

However, Airbnb had 6 million listings on its website at the end of 2021. This gives Airbnb a significant advantage over large hotel chains to be able to meet increases in demand, especially during special events in major cities that cause the filling of hotels.

Airbnb can increase supply quickly as demand increases in a location. Hosts will see the request as an opportunity to earn income on their unused property, which expands Airbnb’s capacity without any expense on the company’s part.

It’s clear that Airbnb’s meteoric growth over the past decade has forced Marriott to respond. In May 2019, the company launched Homes & Villas by Marriott, which allows Marriott Bonvoy members to rent private homes. But Airbnb’s faster growth rate in recent years suggests Marriott isn’t much competition for the cutting-edge travel platform.

2. Airbnb is growing faster than Marriott

The supply advantage could explain why Airbnb has seen a faster recovery rate since late 2020 than Marriott. In recent years, Airbnb’s revenue growth has nearly doubled Marriott’s rate of increase.

Data by Y-Charts

Since Airbnb is a technology platform that does not require massive real estate and maintenance expenditures, it can generate a much higher income. free movement of capital margin in relation to turnover.

Over the past four quarters, Airbnb has generated $1.5 billion in free cash flow on $7.4 billion in revenue, which comes from service fees charged to hosts. Marriott generated $1.9 billion in free cash flow, but more importantly, the higher amount represents a lower margin against nearly $18 billion in revenue.

MAR Income Table (TTM)

Data by Y-Charts

3. Long-term industry trends favor Airbnb

Another victory for Airbnb is the way it meets the growing demand for long term stays. Even before the pandemic, extended stays of a month or more were Airbnb’s fastest growing category.

One advantage for Marriott is its brand and large hotel footprint, and the company has leveraged this advantage well with its Bonvoy loyalty program. Marriott had more than 160 million members at the end of 2021.

However, Airbnb is building its own iconic brand. More customers are using Airbnb to rent homes for longer periods, even as more people return to the office. In fact, stays of 28 days or longer account for a fifth of Airbnb’s business.

Airbnb ticks all the boxes

Marriott has a broad hotel footprint, with brands ranging from affordable hotels to luxury experiences like St. Regis and Bulgari. But Airbnb’s open platform, where anyone with an in-demand property can rent it out and earn extra money, is driving incredible growth for the company.

The only drawback of Airbnb is its stock price which seems expensive. At the time of writing, Airbnb was trading at a forward price-to-earnings ratio of 38, compared to a multiple of 24 for Marriott. But Airbnb’s competitive advantages in capacity and the ability to scale to meet the demand of the millions of hosts on the platform are worth paying for.

Investors should expect Airbnb’s faster growth rate to provide better returns than Marriott’s over the next 10 years. Airbnb might just be the best travel stock to buy in 2022.

John Ballard has no position in the stocks mentioned. The Motley Fool has posts and recommends Airbnb, Inc. The Motley Fool recommends Marriott International and recommends the following options: Long January 2023 $115 calls on Marriott International. The Motley Fool has a disclosure policy.

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