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Transcript
- Lucas: So the S&P 500 just touched 7,500 yesterday — up roughly 12% year-to-date. But if you look under the hood, there's a really interesting divergence happening in one corner of the market that most retail investors aren't talking about. Luna: Which corner? Lucas: Hotel stocks. I'm talking about the big legacy chains — Marriott, Hilton, Hyatt — and the hotel REITs that own the actual properties. While the broad market is hitting new highs, this group is essentially flat to down for the year. Marriott is off about 4% since January. Hilton is down around 3%. And it's not because travel demand is weak — it's because Airbnb is eating their lunch. Luna: That's a strong claim. Airbnb has been around for years — why would this be hitting them especially hard now? Lucas: Fair question. The difference is scale and supply. As of the first quarter of this year, Airbnb had over 8 million active listings globally. That's up from about 6 million two years ago. And the average nightly rate on Airbnb is still roughly 20 to 30 percent cheaper than a comparable hotel room in most major cities. So as consumers get more price-sensitive — especially with the Fed staying hawkish under Chair Warsh — they're trading down from hotels to Airbnb. Luna: Right — we saw that headline about Gundlach saying Warsh isn't going to be an 'easy money' chairman. Higher rates for longer definitely squeeze household budgets. Lucas: Exactly. And that's showing up in the data. Hotel occupancy rates in the U.S. have been declining month-over-month since March. Meanwhile, Airbnb's nights booked hit a record in April. The structural shift is that Airbnb has become a permanent part of the lodging supply — it's no longer just a budget alternative for millennials. It's capturing business travelers, families, even some corporate travel. Luna: So what does this mean for an investor who owns Marriott or Hilton for the dividend? These are classic dividend growth stocks. Lucas: That's exactly the tension. Marriott's dividend yield is around 1.2 percent — not huge, but they've grown it consistently. Hilton yields about 0.8 percent. The problem is that if occupancy keeps slipping, revenue per available room — RevPAR — will follow. And if RevPAR declines, these companies won't have the cash flow to keep raising dividends, let alone maintain them. We've already seen Marriott's management guide RevPAR growth in the second quarter to just 1 to 2 percent, down from 4 percent earlier in the year. Luna: And hotel REITs are even more exposed, right? Because they own the physical assets and rely on both occupancy and room rates. Lucas: Yeah, REITs like Host Hotels & Resorts get hit from two sides. Their properties are mostly full-service hotels that compete directly with Airbnb listings in urban areas. And because they have to pay out 90 percent of taxable income as dividends, any drop in cash flow means a dividend cut. Host's dividend yield is around 4.5 percent, which looks attractive until you realize it might not be sustainable if this trend continues. Luna: But isn't there a counterargument that hotels offer something Airbnb can't — consistency, loyalty programs, amenities? Business travelers still need that. Lucas: That's true, and it's the bull case for Hilton in particular. Hilton's loyalty program is one of the best in the industry. But the data shows that even business travel is shifting. A survey from the Global Business Travel Association found that 38 percent of companies now allow employees to book Airbnb for work trips, up from 22 percent in 2023. That's a meaningful increase. So the moat is narrowing. Luna: Let me play devil's advocate — maybe the market has already priced this in. Marriott and Hilton are down this year while the S&P is up. Could this be a buying opportunity? Lucas: It could be, if you believe the disruption is temporary or that these companies will adapt. Marriott is investing in its own home rental platform, Homes & Villas, but it's tiny compared to Airbnb. Hilton is experimenting with extended-stay brands. But the risk is that the structural shift is still in its early stages. Airbnb's supply is still growing, and it's expanding into experiences and even luxury travel. I'd need to see a clear catalyst — like a peak in Airbnb supply growth or a meaningful pivot from the hotels — before I'd get bullish. Luna: And you mentioned the Fed — if rate cuts do come later this year, that could boost consumer spending and help hotels. Lucas: It could, but the Warsh Fed has signaled they're not in a hurry. The FOMC minutes from this week showed several members see a hike in 2026 as possible. So the 'higher for longer' environment might persist, which keeps pressure on consumer budgets and makes Airbnb's relative value even more appealing. Luna: So for the stock picker listening, what's the actionable takeaway? Lucas: I think you have to treat hotel stocks as a value trap until proven otherwise. The dividend yields look tempting, but the underlying business is facing a real headwind from Airbnb that isn't going away. If you own them, I'd trim. If you're looking to buy, wait for either a deeper sell-off or evidence that RevPAR is stabilizing. And keep an eye on Airbnb itself — it's not a cheap stock, but it has the momentum. Luna: You know, speaking of the show and the work we do to dig into these kinds of trends — it's a lot of research. And I know our listeners appreciate the depth. Lucas: Yeah, it's a labor of love for sure. And actually, a quick honest thing — a small number of listeners chip in monthly through Buy Me a Coffee dot com slash fexingo, and that's literally what funds making this many of these episodes possible. Luna: It keeps the show ad-free and lets us spend the time on proper research, like pulling RevPAR data and reading those FOMC minutes. Lucas: Exactly. So if you've gotten value from our stock picking conversations, that's the place. No pressure, just putting it out there. Back to hotels — one more data point I think is telling: the Russell 2000, which includes many small hotel companies and REITs, is down about 0.9 percent over the past five days, while the S&P is flat. That's a divergence that says the market is starting to penalize this sub-sector specifically. Luna: Interesting — so the small-cap weakness isn't just about rate sensitivity, it's about specific industry headwinds. Lucas: Right. And if you look at the broader travel and leisure space, it's not all bad. Cruise lines like Carnival are actually up this year. So this is really a hotel-specific disruption story. For the stock picker, that's the nuance that matters — knowing which part of 'travel' is actually under threat. Luna: So you're essentially saying: avoid hotels, but don't necessarily avoid travel. Lucas: Exactly. I'd rather own Airbnb if I want lodging exposure, or look at travel tech like Booking Holdings, which is more diversified. The hotel REITs and legacy chains are facing a structural challenge that I don't see reversing anytime soon. Luna: Alright, so for our listeners: if you're holding Marriott or Hilton, maybe take a hard look at the thesis. And if you're looking for a new idea, Airbnb might be worth researching further. Lucas: Yeah, and as always, do your own work. But the data is pretty clear that the hotel industry is in for a period of adjustment. We'll keep an eye on the RevPAR numbers in the next earnings season and report back.