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Playa Hotels & Resorts (NASDAQ:PLYA) Beats Expectations in Strong Q3

By: StockStory

November 06, 2024 at 16:15 PM EST

PLYA Cover Image

Hospitality company Playa Hotels & Resorts (NASDAQ: PLYA) reported Q3 CY2024 results exceeding the market’s revenue expectations, but sales fell 13.9% year on year to $183.5 million. Its non-GAAP loss of $0 per share was also 100% above analysts’ consensus estimates.

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Playa Hotels & Resorts (PLYA) Q3 CY2024 Highlights:

Revenue: $183.5 million vs analyst estimates of $176.3 million (4.1% beat)
Adjusted EPS: $0 vs analyst estimates of -$0.18 ($0.18 beat)
EBITDA: $25.12 million vs analyst estimates of $19.44 million (29.2% beat)
Gross Margin (GAAP): 36.9%, down from 41.2% in the same quarter last year
Operating Margin: 7.6%, up from 6.4% in the same quarter last year
EBITDA Margin: 13.7%, down from 19% in the same quarter last year
RevPAR: $252.12 at quarter end, down 6.4% year on year
Market Capitalization: $1.12 billion

Company Overview

Sporting a roster of beachfront properties, Playa Hotels & Resorts (NASDAQ: PLYA) is an owner, operator, and developer of all-inclusive resorts in prime vacation destinations.

Travel and Vacation Providers

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Unfortunately, Playa Hotels & Resorts’s 8.3% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or emerging trend. Playa Hotels & Resorts’s annualized revenue growth of 8.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. Playa Hotels & Resorts Year-On-Year Revenue Growth

We can dig further into the company’s revenue dynamics by analyzing its revenue per available room, which clocked in at $252.12 this quarter and is a key metric accounting for daily rates and occupancy levels. Over the last two years, Playa Hotels & Resorts’s revenue per room averaged 12.1% year-on-year growth. Because this number is better than its revenue growth, we can see its room bookings outperformed its sales from other areas like restaurants, bars, and amenities. Playa Hotels & Resorts Revenue Per Available Room

This quarter, Playa Hotels & Resorts’s revenue fell 13.9% year on year to $183.5 million but beat Wall Street’s estimates by 4.1%.

Looking ahead, sell-side analysts expect revenue to decline 2.3% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and shows the market believes its products and services will see some demand headwinds.

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Cash Is King

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Playa Hotels & Resorts has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.2%, subpar for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Playa Hotels & Resorts to make large cash investments in working capital and capital expenditures.

Playa Hotels & Resorts Free Cash Flow Margin

The company’s cash burn increased from $3.63 million of lost cash in the same quarter last year . These numbers deviate from its longer-term margin, raising some eyebrows.

Key Takeaways from Playa Hotels & Resorts’s Q3 Results

We were impressed by how significantly Playa Hotels & Resorts blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. Zooming out, we think this quarter featured some important positives. The stock remained flat at $9.02 immediately following the results.

Playa Hotels & Resorts put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.

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