In this Market Foolery segment, host Chris Hill, Million Dollar Portfolio's Jason Moser, and Stock Advisor Canada's Taylor Muckerman consider the win-win value of the new deal between Marriott (MAR +1.06%) and Alibaba (BABA +1.50%) Group. For the internet behemoth, the more services it can offer, the greater its allure to customers, and the bigger its network effect. For the world's biggest hotelier, the agreement gives it a new point of entry from a massive and growing market.
A full transcript follows the podcast.
This podcast was recorded on Aug. 7, 2017.
Chris Hill: Marriott shares up this morning after the hotel chain announced the deal with Alibaba that enables Alibaba users to book Marriott hotel rooms on Alibaba's site.
Jason Moser: Well, maybe Tyson felt a bounce from that, because they figure, more people staying in Marriotts means they're going to be eating steak, chicken, yada yada yada.
Taylor Muckerman: Yeah, you got that breakfast buffet. [laughs]
Moser: I mean, let's just look at the bigger picture here, right?
Hill: Exactly. This seems almost as big a no-brainer as you can get.
Moser: Sure.
Hill: But, obviously, it took a little bit to work this deal out.
Moser: Yeah. It's a win for both companies. I think when you look at a business like Alibaba, the value there is really in the network. And the greater the network, the more value. And it goes in this loop on repeat, it just keeps growing that network larger and larger and it gives you more and more reason to be in that network and stay in that network. So, for Marriott, it's an additional point of distribution. I think this matters, really, Alibaba is looking to take advantage of that massive and growing online travel space. From domestically here to China to everywhere in between, travel is a major opportunity. With Marriott, Marriott is the biggest hotel company in the world post the Starwood acquisition. A very well-run company. It's one we still have on the watch list at MDP. We've identified the price as just, it's not for us a "buy at any price" kind of company.
Hill: So, you're upset that the stock is up this morning.
Moser: We don't like it when that happens. I mean, I'm happy for current shareholders. I can't deny there's a part of me that would love to see this thing pull back a little bit. But, generally speaking, this makes a lot of sense. I think it's also interesting that, it will also open up the Alipay platform so that not only are you able to find and book rooms via Alibaba, you're able to integrate that payment system into the Marriott properties where you might go stay. So, this all boils back down to the numbers that we're seeing here projected over the coming five years and beyond as the Chinese middle class starts to expand. Taylor and I were talking before taping, once the toothpaste is out of the tube, it's really tough to get back in there. What I mean by that is, the more that the Chinese taste that free-market-capitalism style of economy, the more difficult it becomes to put a cap back on that. And I think you'll see -- as the Chinese middle class continues to grow -- spending continue to grow with it. And travel is just notoriously a great opportunity. So, it makes a lot of sense for Alibaba to try to tie up here with Marriott. For Marriott, it gives them another really valuable distribution point, particularly in the age of your Airbnbs, where they're seeing more competition on the consumer side.
Hill: And if you're Alibaba, you have, presumably, a pretty healthy financial incentive to push those search results up when people are looking to travel, I was going to say without being intrusive, but maybe they do want to be intrusive, to essentially guide people who are on Alibaba's site straight into Marriott properties.
Moser: Yeah, they want to be politely intrusive. It's just like anything else. Google, Facebook (FB +2.47%), Amazon (AMZN +4.62%), these are all properties that are trying to use the data they glean from our usage in becoming more valuable to us. On the one hand, you can view it as maybe being a little bit intrusive, in that you're probably giving them a little bit more information than you would want to. On the other hand, they are able to find out more about the things that you like, the places you want to go, the things that you want, and and can serve you more relative offerings in that regard.
Muckerman: It's one of those things where you hate it in the back of your head, but as it's happening, as you see it understanding you're better, you're like, "Well, this is pretty darn convenient. It's really not that bad of a deal."
Hill: Jason, I'm assuming the answer to this is no, but is there any chance that Marriott would break out this information in their upcoming quarterly results? Maybe not necessarily in a press release or something like that, but on a conference call, is this the sort of thing where, if an analyst asks them, "Six months ago, you announced this joint venture with Alibaba, how's that working out, and can you put any numbers beside it?"
Moser: I suspect what we'll see in the near term would just be the gratuitous "things are working great" talk.
Hill: "We're very excited."
Moser: "We're very excited about the synergies." Synergy will probably be bandied about there a little bit. But, in the near term, I don't suspect we'll see any real, firm metrics. Now, if it gains traction and becomes a meaningful driver, then I think they'll have more reason to tout it. So, we'll have to just stay tuned.
