Fears over rising coronavirus cases were sinking the market today, hitting travel stocks like Booking Holdings (NASDAQ:BKNG), MGM Resorts International (NYSE:MGM), and Marriott International (NASDAQ:MAR) especially hard.
Over the weekend, new COVID-19 cases in the U.S. hit a record with about 80,000 new infections recorded on Friday, and cases across much of Europe continue to soar to new records, threatening much of the continent. Some countries across the Atlantic have begun implementing lockdown-style measures to control the spread. France has imposed a 9 p.m. curfew in most of the country.
With the weather getting colder, investors seemed to be fearing another wave of the virus as epidemiologists have been warning of for several months.
As of 2:20 p.m. EDT, Booking shares were down 5.7%, while MGM had given up 5.8%, and Marriott had lost 5.8%. At the same time, the S&P 500 was down 2.2%.
All three of these stocks are exposed to the travel industry in different ways, but count on travel for essentially all of their business.
Booking Holdings, the online travel agency that also owns Priceline, Kayak, and Rentalcars.com, counts on Europe for most of its business, where Booking.com is the clear market leader. Therefore, the company will get hit especially hard from any extended lockdowns in Europe. Cases on the continent fell to minimal levels over the summer, but the second wave could hammer results during the fourth quarter, including the holiday season, and into 2021.
In the second quarter, Booking's revenue plunged 84%, showing the severe impact that the first lockdown had. As an online travel agency, Booking's costs are more flexible than other travel companies as most of its expenses are for marketing, giving it an advantage over hard-hit sectors like cruise lines and airlines, but it still posted an operating loss of $484 million, even after eliminating about 85% of its marketing budget.
Casino operator MGM's business is mostly focused on the Las Vegas market with its resorts including Bellagio, Mandalay Bay, The Mirage, and its namesake MGM Grand. And while case counts in Nevada have been more moderate than in some parts of the country, MGM relies on tourism and business conventions, both of which are likely to suffer longer if cases spike again. Data from the TSA showed that air travel had been gradually recovering. Last week, the U.S. saw its first day with more than 1 million air passengers since March, but that trend could easily reverse.
Revenue plunged 91% in the second quarter as Vegas casinos were shut down for much of the period, but more recently the company has focused on online gaming through BetMGM, and it also received a $1 billion investment from IAC, showing at least one high-profile investor believes the stock is undervalued.
Finally, Marriott, the world's largest hotel company, is similarly exposed to business travel and tourism, though its properties are spread all over the world. Though most of Marriott's properties are franchised, the company is still facing significant challenges as its sees franchisee revenue dry up.
Revenue plunged 72% to $1.46 billion in the second quarter as occupancy rates tumbled. In addition to the challenges from COVID-19, Marriott also faces the threat of disruption from home-sharing services like Airbnb, which now has more rentable rooms than Marriott and confidentially filed to IPO in August, which will give it more capital for expansion. Airbnb also appears to have weathered the pandemic better than the hotel sector as it's benefited from the flexibility of its model.
All three of these stocks are down year to date, but not as much as you might think. As the chart below shows, Booking is off 15%, while Marriott and MGM have lost around a third of their value.
That chart would seem to indicate that these stocks could still fall a lot further if this next wave of the virus is worse-than-expected and provokes lockdown-style effects. We'll learn more when these companies report earnings over the coming weeks.
MGM is first up with its results due out Thursday. Analysts expect revenue to fall 63% to $1.23 billion and predict a loss of $1.01 per share. Though both figures mark an improvement from the second quarter, the forecasts still show that MGM is in a deep hole.