Sifting through management’s earnings commentary for key insights presents its own challenges as the lack of clarity from executives and the noise from all things Coronavirus makes it easy to overplay or underplay a decision. Expedia and Hilton Worldwide Holdings are two recent examples of how NLP (done right) can be a successful anticipatory tool with regards to a company’s fundamentals in a volatile market.
As a travel-related company, Expedia Group (EXPE) has a business that has faced severe challenges in the wake of COVID19. Our NLP Insights Platform has been a successful anticipatory tool with regard to Expedia’s stock price performance:
As shown above, Expedia shares suffered a sharp decline on November 7, 2019. As the stock rebounded nicely into early 2020, the Amenity Score remained negative on the company’s February 13, 2020, conference call. While the stock rose 10% in the days following the earnings release, within a month EXPE shares had declined almost 60%.
Hilton Worldwide Holdings (HLT) presents a different story. While the company’s stock declined 50% from peak-to-trough and has recovered in similar fashion to Expedia’s, the Amenity Score has gone from bad to worse:
While Expedia’s Amenity Scores matches its stock price performance, Hilton’s Amenity Score has diverged from its share price. This difference is largely explained by the Guidance and HeadwindsTailwinds key drivers:
For Expedia, improved cash flow dynamics were discussed on the July 30 conference call, demonstrating a turn in the overall business that began in April and accelerated through the quarter:
As booking trends improved, deferred merchant bookings started to increase in June and ended the quarter at $4.6 billion total or $3.8 billion excluding deferred loyalty with Vrbo accounting for most of the increase. Given the portion of Vrbo deferred merchant bookings owed to partners sent to restricted cash, the growth in Vrbo bookings resulted in restricted cash increasing to $1.3 billion during Q2.
There were positive comments made regarding the hotel business:
A similar dynamic impacted revenue per room night with the growth driven by the increase in mix and improved monetization of Vrbo. … Revenue take rate was abnormally high at 21%.
The air side of the business was also addressed specifically:
...when you look at air, ultimately if you just look at our overall number; you'd see an improvement from April through to June and then a slight weakening in July. But if you then split between the various geographies, North America and LATAM looks pretty similar which will follow a very similar curve that I just mentioned, whereas EMEA and APAC really haven't recovered very well yet from an air perspective.
Finally, the company continues to tighten its belt and in preparation for what might be the new normal:
We continue to drive our efficiency programs throughout the company. We've told you before that we had a target of $500 million that we expected to exceed. We've achieved about $400 million of that on a run rate basis. And again, we expect to do much better than our targets.
While the company’s business performed admirably in the second quarter, the turn seen by Expedia is not as apparent with Hilton. The following analyst question appeared on the most recent conference call.
Question you mentioned and referred to the nice occupancy gains where the portfolio is in that 45% to 50% range. I think you referenced the 50% in one of the answers to the questions. I was hoping maybe you can frame it maybe you said it and I missed it but are you doing or tracking from a rate perspective? Maybe you can kind of put it in perspective of 3Q to the July RevPAR trend and kind of benchmark that against the industry data domestically and globally.
We surely do not fault the company for what occurred, but the answer to this question did not inspire confidence:
And so, when you mix that in, it's just it starts even pre-COVID at a much lower price point. So I think that's what's going on with ADR. I think while there will be pressure on ADR because of the economic issues that have been caused as a result of COVID and it would be silly to say there won't be. I think you will get I think the pressures that you saw in the second quarter that are still ongoing, when you get back to what I'll call a new normalized environment where you have many more of our traditional travelers, higher-end leisure and higher-end business transient travelers on the road again, I think this will right itself quite rapidly.
While sentiment surrounding Expedia’s business has bottomed out and turned upward, the pace of travel recovery seems less certain for Hilton. We expect that this situation will continue to bear watching.
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About Amenity
Amenity Analytics is the industry leader in providing insights from unstructured text by using Natural Language Processing (NLP) assisted by Artificial Intelligence (AI) and Machine Learning (ML). Amenity’s NLP system is a sector-agnostic, language-dependent tool for quantitative text analysis that is deployed across the financial services industry and beyond.
This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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