Wyndham Continues Global Expansion with 19% Ancillary Revenue Growth

WH is a company that I actually took interest in a couple of months ago when I happened to stay at one of their franchise hotels. I had to leave early in the morning at like 4 and when I went out to the parking lot I was astounded that in the little town I was was absolutely full. So I began to take note and found that they continually kept being full and booked out. So that prompted me to look into the business which I actually like a lot, even though some of their methods are un-conventual.

Wyndham is the largest hotel franchisor with a presence in over 100 countries; with 8,300 hotels and 847,000 current rooms. They hold 25 different distinctive brands that expands from economy to luxury and even with extended stay options. Wyndham is different because they do not actually own any real property at all. Instead they make all of their revenue from fees and royalties coming from their franchisees. This allows them to have good reserves of cash and be available to reward investors whether by share repurchases, dividends or even strategic acquisitions like with what they did with La Quinta a couple of years ago.

Because of this they also have a very large amount of debt....however WH does indeed want to operate with a decent amount of debt as they view it as a tool to help them grow. From the outside looking in when you see their debt ratio of around 2.5x that might just be screaming a dumpster fire. However with WH that is a different story. Their goal is to maintain a 2-3x ratio; especially so they can continue to give out more franchise licenses and grow even more. A lot of the debt comes from lending to franchisees in some of the costs to start the hotel up. However this is not always the case and is not a regular thing they do. Usually they only do it with people who have over a million in assets to help keep them protected. However since they are not bound to one single hotel, they are able to spread all over the world. In fact with Q2 of 2025 they have hit their 20th consecutive quarter of sequential growth of hotels.

Along with all of this they continue to not only grow within the U.S but also globally. They currently they have a pipeline of 2,150 new hotels which includes 255,000 rooms. That is a 5% yoy growth rate with it covering 68 countries and even having 12 of those companies having no pre-existing WH presence at all.

Currently they have a couple of different ways in which they generate revenue. Their biggest sources come from royalties and franchise fees; marketing/reservation and loyalty; management fees; license fees; and then other fees (ancillary).

Because of their asset-light model they are able to operate at a very high operating leverage with their FY 2024 Adjusted EBITDA Margin at 83%. Craziest thing is this keeps getting higher every year as they continue to lower their cost of revenue. If you look at the Profitability analysis below it will show a bar chart comparing revenues to revenue costs.

Final big thing I want to talk about before I break into some of my projections is along how also they have 120 Million Loyalty Members; which also continues to grow every year. This large number not only shows how strong of retention rate WH is able to hold; but it also shows why their ancillary revenue has been growing so much. These mainly come from their co-branded credit card and their new co-branded debit card that they have. By year end they plan to have a growth in the low-teens yoy; and then raising that to mid-high teens by 2026 end. This is only a tiny part of their business but if they are able to continue to grow it they have a lot of potential.

In their most recent quarterly earnings which came out yesterday, they came in with a double beat with EPS coming in +11% yoy and revenue coming in +8.8% yoy. And this wasn't even the big thing; they also came in and raised guidance for the second half of 2025. They raised their yoy rooms growth rate from 3.6%-4.6% to 4%-4.6%. They also came in and raised their adjusted their EPS guidance to $4.60-$4.78 from $4.57-$4.74.

Rooms grew 4% yoy

Awarded 229 development contracts globally (+40% yoy)

Record 255,000 rooms (+5% yoy)

Ancillary Revenues up 19% yoy

Royalty Rate in the US + 6bps yoy//Globally + 13bps yoy

US Pipeline + 6% yoy//Global + 5% yoy

Another big thing to add is that out of their pipeline; 70% is for midscale and above and then 17% is for extended stay; with 58% of the pipeline being international. Then from all their new pipeline 76% is new construction and then roughly 35% of it has already broken ground.

So far as well the company for the year has repurchased 923,000 shares for $77 million. One of the big things that caught my attention about this is how they brought up a couple of times how they felt their stock was at a great discount and that is why they have had to continue to buyback since it was too attractive for them.

Then also they have paid $32 million in dividends as well.

Now let me get into some of the other stats.

From everything I have run I feel WH's fair value is $105.80 which is currently 19.11% above their current price.

Forecasts

2 Year: $126.23 (21.05% annual RoR)

5 Year: $187.86 (22.3% annual RoR)

10 Year: $318.32 (25.84% annual RoR)

With that I am currently willing to pay up to $106.10 which would give me my 20% annual rate of return over a 10 year period.

I believe that if WH keeps on progressing and innovating then they can easily hit these numbers.