One of the key themes around earnings the past couple of months is the pivot of consumers from buying “stuff” to buying “experiences”.
The pandemic locked us into our houses and left no alternative but to buy new toys to play with on the couch. As the pandemic started to ease, revenge travel took hold. But it does so at a time when inflationary pressures are robbing the consumer of its spending power and savings.
Here is a look at earnings and commentary from key travel stocks Bookings (BKNG) and AirBnB (ABNB). We also review casino names MGM Resorts (MGM) and Penn National Gaming (PENN) for clues on spending habits.
Finally, we grab a cup of coffee at Starbucks (SBUX) to enjoy while we review how the consumer is holding up heading into the second half of the year.
Re-Opening Travel Plays
Booking Holdings (BKNG)
- The company handily beat by $1.55 on the bottom line but did fall short of revenue expectations.
- Gross bookings jumped 57% y/y, a new quarterly record.
- The company stated it expects record revenue in Q3.
- The stock jumped 4% on the results and Q3 comment but quickly reversed down -4% on the conference call.
- The issue was that the company said it saw consumer behavior start to moderate in July. Adding to that consternation were comments that a higher number of the bookings were cancelable which raises some questions about the record figure reported.
- Shares of BKNG are bumping up into resistance at the 50-SMA which corresponds with the $200 psyche. Investors will want some confirmation on the progress of Q3 before aggressively pushing shares higher.
BKNG Daily Chart:
- The company posted record profitability in Q2, beating expectations by 13 cents. Revenues increased 58% y/y but were only in line at $2.1 billion.
- The Nights and Experiences bookings increased 25% y/y to exceed 103 million, a record number.
- Guidance was upbeat as the company stated it was “in the midst of its strongest travel season yet”.
- ABNB announced a $2 billion share purchase on top of earnings.
- The stock did see some selling pressure in the initial reaction. That likely had to do with its lofty valuation which sits at 48x earnings. That can be a bitter pill to swallow in a rising rate environment.
- Investors jumped in to buy the dip which is leading to a push to the stock’s best levels since early June.
- ABNB, much like the indices, needs to push above this key resistance area.
- We would be cautious chasing this name given the backdrop of a tightening Fed and potential employment decline.
ABNB Weekly Chart:
- Missed by 35 cents but did post a slight beat on the top line as revenues rose 5% to $1.63 billion.
- The company did reaffirm its full-year outlook which is an encouraging sign of a steady business in a tough macro environment.
- The stock continues to see a re-opening push but there looms the concern of weaker employment as the Fed looks to cool off the economy.
- The chart looks great with a steady push-up into the high-$30s.
PENN Daily Chart:
- The casino giant missed earnings by 30 cents but revenues jumped 44% y/y to $3.26 billion, better than the $3 billion expected.
- The company reported its best quarter ever for Las Vegas Adjusted Property EBITDAR.
- All signs point to Las Vegas being back in full gear.
- MGM stands out as one of the best casino plays as it has less exposure than peers like Las Vegas Sands (LVS).
- The stock is attempting to break out above $35 resistance.
MGM Weekly Chart:
- Reported an 8-cent beat while revenues increased 9% y/y to $8.15 billion, slightly better than expected.
- Comps increased +3% globally, +9% in the U.S., and double digits internationally sans China.
- China fell -44% y/y as the COVID shutdowns took its toll.
- The company continued to suspend guidance.
- Investors heralded the return of CEO Howard Schultz and he put his mark on the conference call as it was a steady look at the performance and expectations.
- Schultz noted that the coffee giant was not seeing a change in consumer behavior. This is huge as investors were worried that inflationary pressures may push consumers to look for a cheaper cup o joe.
- The company will hold an investor day in September. The markets would like to see some updated guidance in what is hoped to be a more stable environment.
- Shares of SBUX have been on the rise since early June. The stock rallied from $72 to $88 despite worries around inflation. We are seeing pause post earnings but the 200-SMA ($92) remains very enticing and should be tested for those looking for a shorter-term swing long.
- The key will be that September Investor Day, especially if the stock is sitting at the key 200-day moving average trend line.
SBUX Daily Chart:
The general takeaway is that the consumer remains strong, but we are starting to see some cracks in the armor. Both BKNG and ABNB highlighted a slow down in activity in the month of July.
Consumers were sitting on a mountain of cash, but the strong demand and short supply have led to rising prices which are dwindling savings accounts.
Markets will keep a close eye on the July Jobs number which will hit markets Friday, August 5. A slow down here could raise a red flag around consumer spending. We have certainly seen signs of the slowdown in softer economic survey data but this would signal one of the first alerts from the hard data side.
That could lead to some profit taking in these names. If this occurs, then we will want to keep an eye on how shares respond to key support levels.