The Update Issue: Holiday Travel Outlook, the U.S. Baby Bust, Improved Disclosure at Netflix

By Berna Barshay

Wednesday, November 24, 2021
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As many of us prepare to hit the road today or are settling in after traveling, it seems like a good time to check in on holiday travel plans...

The good news is that leisure travel has bounced back, which should be no surprise to anyone who has had to pay up to get a hotel room in a desirable location or fly during peak times lately. While business travel remains depressed, it seems interest in leisure travel is marching back toward historical levels.

According to a poll conducted by Morning Consult, 44% of adults plan to travel for the holidays this year, up from 35% last year. Approximately 38% responded that they will travel in November, and 63% plan to travel in December.

Holiday travel intent is up year over year in all age cohorts and income levels...

Source: Morning Consult

Younger cohorts are more inclined to travel than older ones – a likely consequence of the lingering pandemic. Baby boomers remain the cohort most likely to stay put, but this older group also had the largest increase in year-over-year travel intent, probably due to vaccines being available this year and not last.

Travel intent was greatest, as expected, in the highest income households with the most discretionary income. Still, the change year over year in travel intent was largest in the lowest-earning group, perhaps a consequence of recent wage gains in hourly jobs along with unspent stimulus checks from earlier in the year.

This is good news for hotels and airlines, who have been subsisting primarily on leisure travel all year. Strong leisure demand has gone a long way to offset weakness from business travelers, who typically make up about 60% of revenues for the hotel industry.

A recent survey from the Global Business Travel Association gave reason for optimism on the business travel front... Almost half of corporate respondents said they plan to resume business travel within the next three months.

Countering that optimism a bit, a different study by Morning Consult conducted late last month found that 39% of business travelers predict they will never travel again for work...

Source: Morning Consult

The bright spot here is that leisure travelers look much more ready to grab their bags and head out the door than they were a year ago. This leisure travel rebound has been building since the spring... Industry participants hold out hope that the business traveler isn't too far behind.

Business travel is back for some and should be back for many more in 2022. At the same time, a lot of events that used to prompt a trip may only prompt a Zoom (ZM) meeting now... so there will likely be some permanent demand destruction, which is part of why I have been so cautious on the U.S. major airlines: American (AAL), United (UAL), and Delta (DAL).

In addition to postponing travels, the pandemic also led some to delay parenthood...

I wrote earlier this year about how the pandemic had caused a baby bust. Whether it was economic concerns or health worries that caused women to postpone pregnancies, the drop in the birth rate in 2020 was the largest in years. The last months of 2020 saw the steepest declines, reflecting an immediate drop in conceptions at the beginning of the pandemic.

The pandemic's baby bust was, however, just a continuation of a trend... The U.S. birthrate has declined for six years straight.

A recent Pew Research Center survey of childless women ages 18 to 49 and childless men ages 18 to 59 found that only 26% replied it was "very likely" they would have children someday. In 2018, 32% of childless adults said they were "very likely" to have children.

As for the cohort who said it "is not at all" or "not too likely" they will have children, 56% explained their position by saying they just don't want them. Notably, this is a drop from 63% in 2018. What's changed since 2018 is that more of the respondents who expect not to have kids cited medical issues, economic or financial reasons, or lack of a partner as their reason for why they won't have kids.

The continued drop in the birth rate has consequences for the economy, well beyond the chilling impact on demand for goods from child-centric companies like retailer The Children's Place (PLCE) and toy company Mattel (MAT).

A declining birth rate can lead to labor shortages, especially in conjunction with limited or reduced immigration. More people drive more gross domestic product ("GDP") growth, so a shrinking population ultimately can translate into a major GDP growth headwind as well.

And if the class of new workers in 20 years is much smaller than the one that came 50 years before it, it will get harder to fund Medicare and other social programs paid for by taxes on people who work.

The U.S. is not alone in facing the problems posed by a secular decline in the birth rate. Most developed nations find themselves battling similar headwinds. Other countries are confronting the issue with cash incentives for birthing children and monthly stipends in the first year of a child's life. Other countries are also investing in child care facilities, enforcing generous maternity leave laws, covering the cost of assisted reproduction technology like in vitro fertilization ("IVF"), and offering child care subsidies.

So far, other than some child tax credits, the U.S. has taken a "laissez faire" approach to declining birth rates. However, a push for universal pre-K on the local level, and now federally in the Build Back Better bill, is a step in the right direction in supporting the choice of parenthood for those who find the financial commitment required daunting.

Following up on a promise made on the last conference call, streaming giant Netflix (NFLX) is providing better disclosure about viewing levels for its top programs...

The streamer launched a website that shows the top 10 programs in each of more than 90 countries. And instead of basing the rankings on how many people watched a program for at least two minutes, the new rankings are based on the total number of aggregate hours spent watching a title.

But don't get too excited... We're still in the dark on how many users finish a show or movie that they start. We also don't know which titles drive new subscribers or improve retention... But you can bet that Netflix knows these things!

Netflix did get more open about revealing how many cumulative hours were spent watching its top shows and films in their first four weeks. Here's the list of the most popular English language shows...

Source: Netflix

Switching over to the non-English language hit list, you can see how much the recent Korean language hit Squid Game trounced the previous crown-holder listed above, Bridgerton...

Source: Netflix

Viewing levels for Squid Game were more than 2.5 times those of Bridgerton, which is shocking given Bridgerton came out over the holidays last year and Squid Game was during the busy early fall back-to-school season. Equally surprising here is the fact that the fourth season of Spanish language hit Money Heist was barely behind Bridgerton and very close to taking the No. 2 spot.

These numbers are a testament to what Netflix has accomplished with international content. In a way, it is the first truly global studio.

We're almost to the time of year when people start doing year-end wrap-ups...

We should start getting hit with the takeaways of 2021 early next week, as we collectively finish the last of the leftover turkey sandwiches and cautiously check our credit card statements online in the wake of Black Friday.

While not intended to be a year-end review, this one-minute Squid Game-themed market parody video does a pretty great job of comically summarizing what has made this year so weird. It could use a few crypto jokes, but it's got meme stocks, a money-printing Fed, and so many other "very 2021" things in the market. Check it out on the @litquidity Instagram account by clicking here.

Source: Instagram/@litquidity

In the mailbag, a reader writes in about non-fungible tokens ('NFTs') and magazine curses, and some reactions to my skeptical piece on salad chain Sweetgreen (SG)...

Are you traveling more this year to make up for a scaled-down holiday last year? And if you aren't traveling yet, what would make you more comfortable getting back out there? Are you traveling for work yet... and if not, when do you expect to? Do you think you will have as much business travel as pre-pandemic? Finally, do you think the government should do more to get the birth rate up? Share your thoughts in an e-mail here.

"Hi Berna, I look forward to your thoughts on Lulu's Fashion Lounge (LVLU) or anything else.

"Seeing today's title about the magazine cover indicator, I thought for sure it'd be about Bored Ape NFTs [with the ape displayed on Rolling Stone's magazine covers].

"I expect the indicator applies to retail as well as NFTs. The latter made the cover of Time earlier this year, along with their own NFT release, and a lampooning on Saturday Night Live ("SNL"), before crashing some 75% then going parabolic months later, in no small part due to the 'generative art' craze the Apes project inspired.

"The SNL appearance didn't sink Musk/Tesla's (TSLA) hyper valued meme stock and celebrity, so hopefully I'm wrong about retail stocks and NFTs taking a hit as I'm still 'holding' my Apes (up 14,000%-plus so far, same as my bitcoin). Ridiculous! And fun!

"May the great Bored Ape smile upon you with warm favor." – Bruno F.

Berna comment: Bruno, that SNL skit was probably my favorite one all year! I think I shared it in an earlier Empire Financial Daily. The combination of a nerd finance subject with an Eminem parody made it a 10/10 for me.

Congratulations on your windfalls in both Bitcoin and Bored Ape NFTs. Well done!

"For those of us who aren't 'quants,' could you translate valuations into share price, e.g., Sweetgreen (or maybe explain how to do it)? What would a reasonable share price range be? Thanks." – Michael S.

Berna comment: Good question, Michael. To calculate enterprise value ("EV") to sales, you first want to calculate EV by adding the market cap to the total debt and subtract any cash on hand. Sweetgreen has about 107 million shares, so a market cap of $4.2 billion, using yesterday's closing price of $39.38. After the initial public offering ("IPO"), I estimate that the proceeds left the company with $500 million in cash, net of debt. So the EV is $3.7 billion here. With trailing twelve-month sales of around $300 million, it is trading at an EV/sales ratio of 12.33.

Chipotle Mexican Grill (CMG) – which probably has the best margins in quick service – trades at around 7 times sales. When premium burger chain Shake Shack (SHAK) came public and had a meteoric rise, it topped out at around 6 to 7 times sales.

6.5 times sales would be a very full valuation for the still unprofitable Sweetgreen. 6.5 times $300 million yields an enterprise value of $1.95 billion. Add on $500 million of cash to get to the market cap, and divide that by 107 million shares, and you get just under $23 per share, which is the most I would ever dream of paying for SG shares. $23 is incidentally lower than the IPO price of $28 – this was an expensive deal.

SG shares would be attractive to me at 2 times sales, assuming no new negative information comes out about the company. An EV/sales ratio of 2 times only gets you to a bit over $10 per share, around 75% lower than here.

"Hi Berna, Love your e-mail letters.

"Yes – I am vegan for health and compassion reasons. I'd pay $15 for a nice healthy salad. (two to three times a month).

"Not sure about the stock. Will wait till it settles down." – Sanjiv

Berna comment: Thanks, Sanjiv! And I think waiting for it to settle down is a good idea.

Happy Thanksgiving! We're off tomorrow and Friday, so look for my next e-mail on Monday.

Berna Barshay
November 24, 2021

Whitney Tilson

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About Berna

Berna Barshay is editor of Empire Financial Daily and a contributing editor to the Empire Stock Investor and Empire Investment Report newsletters.

She graduated cum laude from Princeton University and earned her MBA from Harvard Business School in 1997.

Following her graduation, Barshay spent 20 years on Wall Street. She began her career in equity derivatives at Goldman Sachs and later worked as a buy-side equity analyst at Sanford Bernstein, where she covered global consumer cyclicals and conglomerates.

Later, Barshay spent five years working as a portfolio manager of the Ingleside Select Fund, a long/short fund with a focus on value and event-driven stocks. She later was a portfolio manager at Swiss Re, where she managed the Consumer long/short book on the equity proprietary trading desk.

She has additional experience as a buy-side analyst at several long/short hedge funds – including Sky Zone Capital, Metropolitan Capital, Buckingham Capital, and LaGrange Capital – where she primarily covered consumer and technology, media, and Internet stocks in the U.S. and Europe, with some additional work in financials and energy.

Barshay is a fashion enthusiast, a pop culture addict, obsessive indoor cycler, and prolific social media user. She currently lives in New York with her husband, daughter, and three dogs.