Measuring the Reopening of Lodging, Leisure and Gaming

Current Recovery Dynamics

• Market recovery is currently driven by competing forces: rising COVID cases and variant fears with restrictions versus vaccine-driven hope and pent-up demand.
• Forward bookings for the leisure sector are solidifying for late 2021 and 2022.
• Approximately $1.3 trillion in excess savings accumulated in 2020 is expected to flow back into consumer spending during the recovery period.

Recovery Framework Performance

• Goldman Sachs Research covers 28 stocks in gaming, lodging, and leisure; 24 of these have outperformed the S&P 500 since the introduction of the recovery framework.
• The covered portfolio achieved a 32% outperformance compared to the S&P 500's 14% gain.
• Business travel-related stocks performed significantly better than anticipated, contrary to earlier expectations that they would lag.
• The framework assesses stocks based on historical rebound speed, long-term growth potential (including post-pandemic structural changes), and balance sheet health regarding cash burn and net debt.

China as a Market Indicator

• Travel activity in China has mirrored macro indicators with no significant permanent shifts in consumer or business behavior.
• Leisure hotel demand in China is currently above 2019 levels.
• Business travel demand in China has improved dramatically to levels exceeding those of prior recessions.
• Analysts view these trends as a positive leading indicator for the US market, suggesting behavior will normalize once case counts decline.

Recovery Timeline and Expectations

• Broad vaccine distribution and declining case rates are expected by mid-April to May.
• Travel policies enabling movement are anticipated to take effect around that timeframe, though the transition will be gradual.
• Significant demand improvements are forecast for the summer season.
• A "step function" shift toward normalized (though still slightly depressed) levels of activity is expected to begin around the July 4th holiday.

Long-Term Structural Trends

• Work-from-home acceleration (growing at a 16% compound annual rate pre-pandemic and reaching 62% adoption at lockdown peaks) is blurring lines between business and leisure travel.
• The "bleisure" trend is expected to drive longer-duration trips and increased demand for extended stays in hotels, houses, and apartments.
• Digital transformation has accelerated the adoption of interactive gaming, online gambling, and sports betting, outpacing markets like the UK and Australia due to legal changes and lockdown-induced engagement.
• Operational shifts toward direct bookings, digital/social advertising, and contactless/cashless payment systems are projected to improve future margin structures and profitability.

Valuation and Outlook

• Goldman Sachs Research concludes that the recovery potential is not yet fully priced into gaming, lodging, and leisure stock values.
• Despite partial stock rebounds to pre-pandemic levels, the sector faces lower valuations relative to the S&P 500, which is over 30% higher on a valuation basis.
• The industry is viewed as structurally growing relative to other consumer discretionary sectors, supported by a long-term consumer shift from products to experiences.