Hyatt's Hospitality: A Hidden Gem


How many more vacations have you gone on in the past two or three years?  If you're anything like the average American, the answer is more than in the years prior.  Where investment capitalists once tore down hotels to build up laundromats and grocery stores during the Great Recession, the current state of the hotel industry could hardly be better.  Despite the lingering hangover of a market collapse that devastated the value of real estate, wiped out savings, and pushed personal expenditures pretty far down the budgetary list, the hospitality industry has had a tremendous year in 2015.  No hotel company ahs done better than Hyatt, famous for being better than a budget motel but not too expensive for middle-class folk, whose stock has gained 50% in value within the past three years.  What's the secret behind Hyatt's success?

Enjoy Your E-Stay

The history of the hotel business has changed rather significantly with the innovation of the Internet, and not just with the advent of an opportunity to rake customers over coals by charging for wireless.  Competition from private entities like AirBNB or free-use social media sites like CouchSurfing pose the largest threat now that users can access an alternative to a hotel with just a push of a button on a smart phone.  Unlike some industries that have been woefully unable to adapt to the web, however (most notably the music industry), hotels have rolled with the punches and created a variety of original answers to their web demons.  Companies like Hyatt are able to market every available room by providing an e-tour of the available bedroom and the nearby facilities.  The tremendous marriage between social media and the travel industry has been a godsend for many hotels, who can easily get free advertising every time that a customer snaps a selfie in the proximity of one of their properties.  Finally, blitz web deals like Groupon make it easy for a hotel to offer up available rooms that have no takers, filling up the vacancies rather than let a money-making room go empty for the night.  While almost all hotel companies have enjoyed the rising tide, none of enjoyed it quite like Hyatt.

Growth and Numbers

Measuring the hotel industry's success or failure rather resembles many of today's byzantine baseball statistics.  Revenue per available room, or RevPAR, represents one of the most critical major indices of hotel health.  The industry's overall RevPAR has climbed steadily over the past five years, a period of prolonged growth that mimics the hotel boom between 2000 and 2007.  Here, Hyatt (H on the NYSE, trading for $53.21 a share) scores well ahead of the competition, with a RevPAR that's grown by a third compared to August of 2014.  This single statistic encompasses a variety of smart business decisions laid down by Hyatt, ranging from their expansion into new markets to a focus on international exposure.  Private equity firms have leapt at the chance to back Hyatt's expansion plans, with the hotel chain having captured more of the total industry's revenue growth (estimated at about fifty billion) through the first six months of the year according to Jones Lang LaSalle.  Hyatt now enjoys a forward-looking profit-expense ratio of 38.2, one of the best in all the hotel industries and nearly double that of competitors like Marriott and Hilton, in tandem with 5.8% annual growth and a margin of just 7%.  How did they get to this point after seeing their stock drop by 30% in 2011?  By doing less rather than more.

More Isn't Better

Leasing cars or renting apartments minimize the risk to an individual or a business that needs to capitalize on function, if not ownership itself.  Hyatt followed the trend of minimizing risk by franchising a huge number of hotels rather than directly buying new properties.  The franchise model, much like that of neighbor industry fast food, nets a nifty share of profit both up front and in the long run without saddling the company with the possibility of failure.  As Hyatt operates thousands of hotels but only owns a few hundred, they get to trim down their assets but not their company revenue.  Since Hyatt has the size to diversify their franchises, furthermore, they can sell a Grand Hyatt at a popular tourist destination for a pretty penny, or franchise an upscale Hyatt Ziva resort where customers pay a fortune to have a room with a view and a mini bar full of "free" booze.  With four out of five Hyatt rooms located outside the US, furthermore, the company doesn't have to go with the economic flow (strong though it currently is) at home.

A Hotel on Boardwalk

  • Investors may be scared of a late-summer slump for Hyatt, as the company stock now trades at one-year lows after a bad July.  Don't give in to fear that the summer season has ended soon: the low price reflects a fantastic value buy.  Boost your portfolio by buying shares of Hyatt as soon as humanly possible in order to ride the wave as the company releases Q2 earning data that will likely be some of the best in all of their history.
  • Remember that hotel supply remains static but demand does not.  Investors should not consider Hyatt as a long-term plan (or at least not any longer than six to eight months and the conclusion of the holiday travel period) due to the large degree of variance regarding their market.  The stock can turn a tidy profit in as little as the next four weeks as the company rebounds from a poor July; hold on to it longer, but not past the end of 2015, to see ideal value.
  • The companies that boost Hyatt's value up can also hurt.  TripAdvisor steers customers towards Hyatt hotels today, but the former company's in-the-works partnership with Marriott will reduce the marketing opportunities to the available pool of consumers.  Good news for web tourism represents bad news for Hyatt; don't be afraid to pull the plug on the investment once it has paid off.

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