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Hilton Rides On Expansion & Loyalty Program Amid Competition
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Hilton Worldwide Holdings Inc. (HLT - Free Report) continues to gain from its expansion strategies, industry-leading loyalty program and an asset-light business model. However, challenging economic conditions in some key operating regions, along with stiff competition, remain concerns for the company.
In the third quarter of 2018, Hilton reported mixed results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Earnings beat/met the Zacks Consensus Estimate for straight nine quarters. For 2018, adjusted earnings per share are projected between $2.67 cents and $2.72 cents, up from $2.64 cents and $2.71 mentioned earlier. The Zacks Consensus Estimate is pegged at $2.71.
Meanwhile, shares of Hilton have lost 4.1% over the past year against the industry’s 18.2% decline.
Continual Expansion — Major Growth Driver
In a bid to maintain its position as the fastest-growing global hospitality company, Hilton is continuing to drive unit growth. During the third quarter, it opened 113 hotels, taking the room count to 16,100. The company achieved net unit growth of 14,800 rooms, indicating a 24% increase from the prior-year quarter. For 2018, it projects approximately 6.5% net unit growth. It also continues to have more rooms under construction in Europe, the Middle East and the Asia Pacific compared with any other hotel chain. The company expects greater international expansion in 2018.
Notably, the company continues to make great progress in its luxury development strategy, anticipating double-digit luxury growth in the next several years. Hilton’s new brands — including Home2 Suites, Tru by Hilton and Tapestry Collection — are also gaining momentum globally. During the third quarter, Hilton introduced an urban lifestyle brand called Motto by Hilton.
Strong Loyalty Program Aids
Hilton has created one of the largest loyalty programs, Hilton Honors. With about 82 million members, this network created an extremely valuable asset for the company. In 2017, it added over 11 million members to the program. Further, in the third quarter of 2018, more than 3.5 million members were added to Hilton Honors.
In the meantime, innovations such as the Hilton Honors app continue to drive growth in the program. In addition to being the company’s fastest growing and lowest cost distribution channel, this app, launched in December 2017, enables a differentiated customer experience. In fact, the loyalty program increased occupancy in the third quarter to nearly 60%.
Concerns
The hotel industry is highly competitive as major hospitality chains, with well-established and recognized brands, are continuously expanding their global presence. Hilton is continuously facing intense competition from large hotel chains like Hyatt (H - Free Report) and Marriott (MAR - Free Report) . Increasingly, the company also faces competition from new channels of distribution in the travel industry.
Additional sources of competition include large companies that offer online travel services as part of their business model such as Alibaba (BABA - Free Report) , search engines such as Google, and peer-to-peer inventory sources such as Airbnb and HomeAway. These sources allow travelers to book stays on websites that facilitate short-term rental homes and apartments from owners, thereby providing an alternative to hotel rooms. Unless Hilton counters these competitions with appropriate strategies, it may pose a threat to the company’s future profitability.
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Hilton Rides On Expansion & Loyalty Program Amid Competition
Hilton Worldwide Holdings Inc. (HLT - Free Report) continues to gain from its expansion strategies, industry-leading loyalty program and an asset-light business model. However, challenging economic conditions in some key operating regions, along with stiff competition, remain concerns for the company.
In the third quarter of 2018, Hilton reported mixed results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Earnings beat/met the Zacks Consensus Estimate for straight nine quarters. For 2018, adjusted earnings per share are projected between $2.67 cents and $2.72 cents, up from $2.64 cents and $2.71 mentioned earlier. The Zacks Consensus Estimate is pegged at $2.71.
Meanwhile, shares of Hilton have lost 4.1% over the past year against the industry’s 18.2% decline.
Continual Expansion — Major Growth Driver
In a bid to maintain its position as the fastest-growing global hospitality company, Hilton is continuing to drive unit growth. During the third quarter, it opened 113 hotels, taking the room count to 16,100. The company achieved net unit growth of 14,800 rooms, indicating a 24% increase from the prior-year quarter. For 2018, it projects approximately 6.5% net unit growth. It also continues to have more rooms under construction in Europe, the Middle East and the Asia Pacific compared with any other hotel chain. The company expects greater international expansion in 2018.
Notably, the company continues to make great progress in its luxury development strategy, anticipating double-digit luxury growth in the next several years. Hilton’s new brands — including Home2 Suites, Tru by Hilton and Tapestry Collection — are also gaining momentum globally. During the third quarter, Hilton introduced an urban lifestyle brand called Motto by Hilton.
Strong Loyalty Program Aids
Hilton has created one of the largest loyalty programs, Hilton Honors. With about 82 million members, this network created an extremely valuable asset for the company. In 2017, it added over 11 million members to the program. Further, in the third quarter of 2018, more than 3.5 million members were added to Hilton Honors.
In the meantime, innovations such as the Hilton Honors app continue to drive growth in the program. In addition to being the company’s fastest growing and lowest cost distribution channel, this app, launched in December 2017, enables a differentiated customer experience. In fact, the loyalty program increased occupancy in the third quarter to nearly 60%.
Concerns
The hotel industry is highly competitive as major hospitality chains, with well-established and recognized brands, are continuously expanding their global presence. Hilton is continuously facing intense competition from large hotel chains like Hyatt (H - Free Report) and Marriott (MAR - Free Report) . Increasingly, the company also faces competition from new channels of distribution in the travel industry.
Additional sources of competition include large companies that offer online travel services as part of their business model such as Alibaba (BABA - Free Report) , search engines such as Google, and peer-to-peer inventory sources such as Airbnb and HomeAway. These sources allow travelers to book stays on websites that facilitate short-term rental homes and apartments from owners, thereby providing an alternative to hotel rooms. Unless Hilton counters these competitions with appropriate strategies, it may pose a threat to the company’s future profitability.
Hilton currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
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