Marriott Earnings: Demand Still Traveling Higher as MGM Deal Supports Brand Advantage

We plan to increase our Marriott MAR fair value estimate to around $190 per share from $184 due to slightly higher 2023 demand and time value. We see shares as slightly overvalued.

Second-quarter revenue per available room, or revPAR, increased 13.5%, as international travel jumped 39% and U.S. and Canada travel grew 6%. Greater China revPAR more than doubled from last year, driven by domestic travel recovery after the removal of COVID-19 restrictions in January. We think the rebound in China demand has further to run, as international flight capacity, which is currently only at 40% of 2019′s level, returns. We also expect leisure travel to endure, and for group and business trips to continue to grow. In this vein, Marriott increased its 2023 revPAR growth guidance to 12%-14% from 10%-12%, with international now expected to grow 28%-30% versus 22%-25% prior (U.S. and Canada revPAR growth targets were largely unchanged at 7%-9%). We plan to tweak our 11% forecast for the full year to within the new range. Meanwhile, quarterly adjusted EBITDA of $1.22 billion (128% of 2019′s level) surpassed management’s guidance for $1.14 billion-$1.165 billion.

Marriott’s brand (source of its narrow moat) is strengthened by its partnership with no-moat MGM. Now, MGM and Marriott’s 40 million and 186 million members, respectively, can use their points to book across each other’s platform. Further, Marriott stands to get revenue fees when travelers book one of MGM’s 37,000 Vegas rooms on the hotelier’s platform. The MGM deal adds 2.4 percentage points of unit growth for Marriott this year, but excluding the partnership, we calculate organic room growth guidance of 4.15% at the midpoint, down from 4.25% prior, which we think reflects financing timing. Overall, our 4.2% organic unit growth estimate for 2023 holds. Meanwhile, Marriott’s room pipeline grew a respectable 5% organically year-over-year. We think the Marriott can post around 5% unit growth on average during 2024-26.