Ray Dalio (Trades, Portfolio) is a billionaire investor and the founder of Bridgewater Associates, which reported over $16 billion in 13F holdings as of the end of the first quarter of 2023.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Dalio recently stepped down to more of a mentor role at Bridgewater, but the strategy he set up will have a long-lasting influence over the firm's investment philosophy. In the first quarter of 2023, Dalio's firm loaded up on two travel stocks, Airbnb (ABNB, Financial) and Travel + Leisure (TNL, Financial), which I thought was interesting; let's dive in.
1. Airbnb
Airbnb (ABNB, Financial) is one of the most high-tech and best-known online travel platforms in the world. The company offers an online platform to connect travelers with homeowners offering spare rooms or houses. This means it does not need to physically own any properties, as a hotel chain would.
Its supply of properties is also dynamic. For example, during the lockdowns of 2020, Airbnb’s homes expanded into alternative locations such as the countryside, mountains and even the desert. Then as the reopening of the economy occurred in 2021, its inventory naturally rebalanced as homebuying returned to cities. Hotel chains are basically stuck to the same locations, offering the same boring rooms.
Bridgewater increased its position in Airbnb by 139% in the quarter, loading up 167,113 shares. The average share price was $114 for the quarter.
Strong financials
Airbnb reported strong financial results for the first quarter of its fiscal year 2023. Its revenue was $1.82 billion, which beat analyst forecasts by $30.69 million and rose by a rapid 24% year over year.
This was driven by over 120 million nights and experiences, up 19% year over year and a new record for the company. This was surprising given the macroeconomic environment and consumer sentiment more generally.
On its earnings call, Airbnb’s management noted more guests were booking trips in advance, which is a positive for the backlog.
The travel consumer has also begun to take more international trips, with cross-border nights booked up a blistering 36% year over year.
Asia Pacific is also experiencing a strong recovery with nights booked up over 40% year over year.
Another positive trend for Airbnb was a growth in longer stays which increased by 18% year over year. In 2022, Airbnb made it a strategic goal to boost the number of longer stays for guests and advertised the use of its properties for remote work.
On the supply side, its properties increased by 18% year over year, with the fastest growth in the U.S. and Latin America. I believe this was partially driven by the introduction of an enhanced onboarding process for hosts. This enabled a newbie host to connect directly with an experienced host to guide them on best practices.
In terms of core product features, the company announced over 50 new features based on feedback directly from customers. This included pricing tools and transparent checkout instructions.
In Airbnb’s May 2023 “Summer Release,” the company announced “Airbnb Rooms," a new take on its legacy roots as a way to rent a room in somebody else's home. This has a few benefits for guests, as the cost is often much lower than renting an entire home. In addition, a guest can interact and meet with a host if they wish, which is the core essence of Airbnb’s original idea. For hosts, it means they can rent out a room in their home easily and still be able to live there as normal.
Airbnb reported a $5 million net loss in the recent quarter, which was the same as in the prior year. I believe this is mainly due to seasonal effects as the company reported strong profitability over the prior three quarters. Its free cash flow also rose to $1.6 billion in the quarter.
The company has a fortress balance sheet with a staggering $10.6 billion in cash and short-term investments compared to debt of $2.3 billion.
This strength enabled the company to initiate $2 billion in buybacks in the trailing 12 months, and the board approved a further $2.5 billion in buybacks.
Valuation
Airbnb trades at a price-sales ratio of 9.71, which is 29% cheaper than its five-year average.
2. Travel + Leisure Co
Travel + Leisure Co (TNL, Financial) is a travel media company which owns a variety of brands and websites. This includes TravelandLeisure.com, which has over 20 million website visits per month, RCI, which is the world's largest vacation exchange company, and various vacation membership clubs.
In 2018, Wyndham Hotels & Resorts (WH, Financial) was spun off from Wyndham Worldwide and merged with the Travel + Leisure Group (Wyndham Worldwide simultaneously changed its name to Wyndham Hotels & Resorts).
The new brand under Travel + Leisure became Wyndham Destinations, which is the world's largest vacation homeownership business, with over 245 resorts and 830,000 owners globally. Its business model focuses on timeshare vacation rentals, but unlike traditional rigid programs, Wyndham offers a flexible point-based system.
Bridgewater purchased 22,055 shares of this stock in the first quarter of 2023. During the quarter, the shares traded for an average price of $40.
Solid financials
Travel & Leisure reported solid financial results for the first quarter of 2023. Its revenue was $879 million, which rose by 8.65% year over year. This is much lower than the incredible 45% revenue growth reported in 2021, but those strong results were driven mainly by the reopening of travel.
More importantly, the company also reported solid profitability, with operating income of $140 million, which increased by over 10% year over year.
Its earnings per share (EPS) was $0.81, which beat analyst forecasts by $0.05.
Travel & Leisure doesn’t have as strong of a balance sheet as Airbnb, with just $196 million in cash and short-term investments compared to over $5.5 billion in total debt. A positive is the majority of this debt is related to property ownership and thus one could consider this “good debt" in my opinion.
Valuation
Travel & Leisure trades at a price-sales ratio of 0.95, which is cheaper than the sector median of 1.94.
The GF Value chart indicates a fair value of $62 per share and thus the stock is “significantly undervalued” at the time of writing.
Final thoughts
Both Airbnb and Travel + Leisure are two great travel companies in my opinion. Airbnb is the more disruptive one due to its unique business model and scalability. The company also has a fortress balance sheet, which should enable the business to weather any upcoming economic storm which may hamper travel demand. Airbnb is also founder-led by Brain Chesky, who continues to drive the company forward and innovate with new feature launches.
