In this issue of the peel:

• Hospitality giants reveal their latest earnings, but are they still basking in the afterglow of a record summer or just stumbling over the post-pandemic hangover? Despite record travel, top hospitality stocks falter, exposing cracks in the industry's recovery.

• Upstart Holdings and Shopify shine with strong earnings and growth, while Super Micro stumbles despite impressive growth figures, and Disney struggles with its Parks division despite a profitable streaming segment.

• Amid rising loan demand and hints of easing standards, the latest SLOOS report reveals how loan officers are balancing on the tightrope between higher consumer eagerness and ongoing caution.

Market Snapshot

Banana Bits

• The Bank of Japan decided that destroying the country with rate hikes is a bad move.

• 15 states saw population declines from 2020 to 2023… find them here.

• Future Treasury Secretary Jamie Dimon hypes up recession odds.

• Warner Bros. Discovery stock falls apart on huge writedowns revealed in Q2 earnings.

• Warren Buffett could run QT more effectively than the Fed at this point.

The Daily Poll

Previous Poll:

What’s your favorite summer Olympic event to watch?

Gymnastics: 27.5% / Basketball: 17% / Soccer: 6.5% / Swimming: 33.5% / Something else (write-in): 15.5

Macro Monkey Says

Earnings Spotlight: Hospitality Stocks (ABNB, MAR, HLT)

The only company that robs me worse than the IRS with bullsh*t “cleaning” fees (after demanding I clean the house anyway) just reported earnings.

However, despite seeing record levels of travel in the U.S. this summer, shares experienced a significant decline, reflecting investor concerns.

Airbnb is down bad. Hilton and Marriott aren’t doing great either, so let’s see how the leisure and hospitality market did last quarter.

The Numbers

Aside from the increase in red tape as the government fuels job growth by hiring (somehow) even more inconsequential bureaucrats, leisure and hospitality jobs have led the way for employment creation in the post-pandemic period.

Now, let's find out from the company's meeting if it was worth meeting that demand.

Airbnb: The largest of the bunch, also the one with the lowest revenue, plummeted on mixed results. The company reported:

• Revenue of $2.75bn, barely beating estimates for $2.74bn, and

• EPS of $0.86/sh, missing estimates for $0.92/sh by 6.5%.

Sales grew 10.63% YoY, the slowest growth seen since 2020. At the same time, Airbnb reported record Q2 Nights & Experiences bookings of 125.1mn, signaling weaker monetization of this key metric.

Gross Booking Value (GBV) increased healthily, up 11% to $21.2bn. So, hosts are doing fine, but in an effort to minimize the levels of pissed-off guests after leaving, the platform itself appears to be taking less of a cut.

But that wasn’t even the worst part. Airbnb's revenue guidance for the third quarter of $3.67bn to $3.73bn was disappointing, citing “shorter booking lead times globally and some signs of slowing demand from U.S. guests.”

As if markets weren’t worried enough about consumer discretionary spending, Airbnb just confirmed it for them.

However, CEO Brian Chesky stood on business Wednesday morning as the stock was down 16.6%, saying, “I’m confident it’s a good time to buy.” You’d be hard-pressed to find a CEO saying the opposite though…

Marriott: The brand behind the hotel whose trash chute I once puked in on the outskirts of Newton, Massachusetts (sorry about that) is down 5.5% since reporting earnings on July 31st. The company delivered:

• Revenue of $6.44bn missed estimates for $6.49bn, and

• EPS of $2.50/sh just barely beat estimates for $2.49/sh.

Total revenue grew by 6%, but when analyzing hotel chains that actually own their rooms, unit economics can paint a clearer picture of industry trends.

Marriott’s RevPAR (Revenue Per Available Room) grew 3.9% in its U.S. & Canada segment, driven by 1.1% occupancy growth and 2.4% increases in average daily rates (ADR).

That’s an across-the-board slowdown from last quarter and last year, led by a decline in average daily rates from 4.1% posted in Q2’23.

As we can see here, the company’s biggest problem specifically is growth in its Luxury brands, like the Ritz Carlton or The W Hotel. 

This is further evidence that consumers are spending more conservatively on travel, perhaps the peak of “discretionary” spending.

And it wasn’t just the U.S. Weakness in China, triggered by economy-wide deflationary pressures, hindered growth in the region.

Hilton: Ahhhh, so here’s where all of Marriott’s customers are going.

Shares still fell, but Hilton’s numbers looked slightly better than those of its larger competitor. The company reported:

• Revenue of $2.95bn, just ahead of the $2.9bn, and

• EPS of $1.91/sh, beating estimates for $1.86/sh by 2.7%

The market hated Hilton’s earnings a little less than the others, but weak guidance still pulled shares lower. Similar trends existed in the company’s unit economics as well as in the Asia Pacific (APAC) region.

Once again, filling up rooms wasn’t a problem, but passing on increases in average daily rates became more challenging, especially in the APAC region.

However, the difference here is that Hilton was able to grow its total number of rooms at a higher rate than Marriott, opening 22.4k rooms and setting a record high in the number of rooms under development in its pipeline. 

The Takeaway?

Consumers are traveling and leisuring at record levels. But, despite the continued elevated demand compared to pre-pandemic trends, companies aren’t able to pass on costs as effectively.

That’s not necessarily a good or bad sign for the economy, but better and worse in different ways.

It’s better that consumers are still flush with enough cash to travel and book away-from-home stays at record rates. 

But, given the shift to lower-end rooms and less costly Airbnb, consumers aren’t flush with enough cash to keep paying the prices they paid in 2022 and 2023.

Given the record highs in occupancy, there’s little reason to fear an unemployment crisis in the industry. However, wage growth will likely continue to slow in this massive sector just as the ability to charge exorbitant prices has declined.

With rent prices also moving, maybe van life doesn’t sound like too bad of an option anymore…

What's Ripe

Upstart Holdings (UPST) 39.51%

• The company behind the funniest CNBC clip of all time is giving investors even more reason to smile after its quarterly report… despite a 6% revenue decline.

• Still, revenue of $128mn beat estimates for the AI-enabled lending platform. The firm lost $0.17/sh but fared better than the $0.39/sh loss expected. 

• Consumers are getting used to higher rates, however, with rate check conversions growing from 9% to 15%. Full-year guidance was strong as well.

Shopify (SHOP) 17.83%

• You’d think that Shopify’s pregnant and nearing its due date with how big of a bump they saw in subscriptions last quarter. The firm beat across the board.

• The online store platform and retail POS provider reported a 27% jump in subscription revenue while total sales grew 25%, eking out a 0.2% beat.

• Growth in subscriptions helped improve margins and contributed to a 243% YoY jump in free cash flow. Earnings beat by 30%, and guidance was raised, too.

What's Rotten

Super Micro Computers (SMCI) 20.14%

• Like a friend who says he can drive a stick shift but stalls at the first intersection he encounters, Super Micro had a lot to live up to last quarter—and they failed miserably.

• You know it’s getting bubbly when 78% EPS growth misses estimates, and 100% revenue growth just barely beats expectations. But that’s exactly what SMCI did.

• 2025 revenue guidance of $28bn destroyed estimates, and a 10-for-1 stock split was announced too, but it wasn’t enough to justify the firm’s elevated valuation.

Disney (DIS) 4.43%

• With Airbnb, Disney did a great job killing the vibe for WSO Alpha yesterday. Shares sank despite earning a profit in streaming for the first time ever.

• Disney’s Parks business became a drag, with a 3.3% decline in operating profit due to higher costs and lower attendance toward the quarter’s end. 

• Streaming, including Disney+, Hulu, and ESPN+, earned $47mn on $6.38bn in revenue. It's still not great, but it's a huge swing from the recent billion-dollar losses.

• Overall, Disney’s net income of $2.62bn, based on a 3.7% rise in revenue to $23.08bn, beat estimates. 

Thought Banana

SLOOS-er

As I have unfortunately learned in recent months, not all loan officers are made the same. 

I’ll be diving deep into my personal home-buying process in the coming weeks, but until I'm fully moved in, I think I’ll avoid saying anything that will make them want to triple my rate.

Anyway, just this week, we received word from several loan officers on current lending conditions. Let’s get into it.

What Happened?

The Senior Loan Officer Opinion Survey (SLOOS) dropped on Monday, detailing conditions for July.

Spoiler alert: Not much has changed. But let’s do every journalist's favorite thing and read way too much into some of the data.

Loan demand is on the rise from consumers, and for the first time since 2022, demand for new credit card loans has moved into positive territory. This indicates that consumer demand for credit is increasing, rather than just decreasing by less compared to April, May, and June.

Part of the equation is the expectation for lower rates. Despite this, most senior loan officers are continuing to tighten lending standards but are reducing the pace of such tightening. 

Finally, when it comes to mortgages, a similar trend is emerging.

Loan officers are still tightening, as I unfortunately know all too well, but mortgage demand is nearly back to positive growth (again, not just less negative growth) once again.

We’re still not quite there yet, but when you wise apes buy mansions of your own, hopefully, you’ll have a little more negotiating power than I did.

The Takeaway?

As rate cuts approach, consumers and loan officers are coming closer together.

Loan officers understand that lowering standards may be necessary to continue growing their books. However, increased macro uncertainty is causing many to pull in the opposite direction, creating a balance that leaves standards mostly unchanged.

Consumers, on the other hand, have finally heard that rates are falling and are eager for free money like it was in 2020. 

With default rates on the decline, this is just the first step in loosening U.S. financial conditions. Who knows how high this demand can go when rates are lowered?

The Big Question: Can we expect default rates to increase as lending standards become less tight? Will mortgage origination explode following a Fed rate cut?

Banana Brain Teaser

Previous

How many integers between 1 and 16, inclusive, have exactly 3 different positive integer factors? (Note: 6 is NOT such an integer because 6 has 4 different positive integer facts: 1, 2, 3, and 6.)

Answer: 2

Today

A certain bridge is 4,024 feet long. Approximately how many minutes does it take to cross this bridge at a constant speed of 20 miles per hour? (1 mile = 5,280 feet)

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Jasper, Ankit, & Patrick

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