Delta Air Lines Reports Record Revenue as Consumer Spending Shifts Towards Essentials

In a promising sign for the airline industry, Delta Air Lines has shown resilience, reporting its highest-ever annual revenue. This revelation coincides with broader trends in consumer spending, particularly in the cosmetics sector and other retail segments.

BNPL Spending on the Rise

Buy Now, Pay Later (BNPL) services saw growth, totaling just over $18 billion this year, up from $16.6 billion a year ago. Analysts noted stronger-than-expected discounting trends. As we enter earnings season, the focus will sharpen on retail margins, with analysts carefully monitoring these figures.

Credit Card Debt Concerns

During discussions about consumer strength, Ron Gross raised a red flag regarding credit card debt and savings balances. He urged caution, suggesting that soaring consumer expenditures might lead to future financial repercussions if funded through debt.

Holiday Shopping Trends Favor Cosmetics

Dylan Lewis highlighted Adobe’s report revealing the cosmetics and skincare categories ranked high for sales during Black Friday. This growth is encouraging for Ulta, a leading beauty retailer.

Ulta’s New Leadership and Optimistic Outlook

In recent announcements, Ulta appointed Kecia Steelman as CEO, replacing Dave Kimbell. With Steelman’s decade-long experience at the company, expectations are high as they raised their holiday quarter guidance amid increased customer traffic and spending.

Delta’s Strong Performance

As the earnings season kicks off, Delta is setting a positive tone with a robust report. A notable 10% surge in shares followed the announcement, which detailed a 5.7% revenue increase driven by strong demand—outpacing the company’s guidance of 2-4%. CEO Ed Bastian emphasized growth in corporate bookings and international markets, promising a favorable outlook into 2025.

Improved Margins and Solid Cash Flow

Cost control has been a highlight for Delta as operating margins expanded to 12%, up from 9.7%. With a pre-tax income of $1.6 billion—up $500 million from last year—the airline anticipates $4 billion or more in free cash flow for 2025. Its debt levels are secure, now rated as investment grade by three credit agencies.

Market Impact on Other Airlines

Gross observed that Delta’s success may bode well for its peers, with United Airlines’ shares rising and expectations for positive earnings reports. In contrast, Southwest Airlines is struggling, trading at 20 times earnings due to depressed profit margins, compared to 7-9 times for the rest of the industry.

Disney’s Advertising Strategy

Switching topics, Disney unveiled that 157 million global users now subscribe to ad-supported tiers across its platforms, including Disney+, Hulu, and ESPN+. This highlights a strategic pivot as Disney aims to capture a larger market share through more affordable, ad-supported options.

Netflix’s Ad-Supported Growth

Moser pointed out that Netflix’s ad-supported tier also saw impressive growth, with 70 million users globally—up from 40 million in May. This shift emphasizes the growing appeal of ad-supported subscriptions, despite potential concerns over declining average revenue per user for ad-tier customers at Disney.

Long-Term Strategies Amid Streaming Challenges

Gross believes that Disney’s management is wisely navigating consumer demands for affordable streaming options while investing in long-term monetization strategies, even if it leads to some short-term fluctuations in revenue metrics.

As the market anticipates further earnings reports, both Delta and Disney illustrate how adapting strategies can lead to growth, amidst evolving consumer behavior.

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Disney and Amazon Chart Distinct Paths Amid Shifting Ad Markets

Despite recent struggles since the pandemic, Disney may represent an intriguing value investment opportunity.

Dylan Lewis: Disney has remained relatively unchanged this week, dipping about 2%. This might indicate that investors are not overly excited about Disney’s streaming plans, especially after the company announced it would acquire Fubo TV but later revealed no venue sports would be launched with some partners in the joint venture. Do you think Disney needs clearer strategic direction on its streaming efforts, Ron?

Ron Gross: Clear communication is crucial. While they may have strategies in place, what we really need is precise and transparent guidance.

Dylan Lewis: Staying within the advertising realm, Amazon recently introduced its retail advertising service. This initiative will enable U.S. retailers to display ads on their websites, allowing customization of design and placement. Retailers will also have access to Amazon’s ad analysis tools. Jason, doesn’t this resemble what Google offers to online publishers?

Jason Moser: Indeed, Amazon is following in Google’s footsteps, tapping into the advertising market. Their recognition of this opportunity could mean significant growth. Amazon’s ad revenue reached just over $14 billion in the latest quarter, solidifying its place as a significant player right behind Alphabet and Meta.

Ron Gross: Advertising is now Amazon’s third-largest revenue source, following online stores at $61 billion and cloud computing at $27 billion. As the advertising sector continues to develop, it could potentially rival the cloud services in a year or two.

Jason Moser: Many investors might wonder if Amazon stocks still hold value given the company’s immense size. However, analyzing its ongoing opportunities across retail, cloud services, and now advertising offers a clearer picture. All three divisions can enhance each other, making me, as an Amazon shareholder, reluctant to sell my shares anytime soon.

Dylan Lewis: I’m in agreement regarding their strategic vision. It’s refreshing to see them diversifying beyond simply increasing ad involvement on Amazon’s core e-commerce platform, especially since users have noticed some fluctuations in search results recently. [laughs]

Ron Gross: Searching for products isn’t always a great experience, but that doesn’t deter my yearly Prime membership.

Dylan Lewis: That quick shipping really makes a difference. Moving on to other advertising news, CEO Mark Zuckerberg announced that Facebook and Instagram will transition away from fact-checkers, opting for crowd-sourced community notes instead. He explained that the previous guidelines became overly complex and restrictive, hindering free speech. Jason, how does this decision affect users and advertisers?

Jason Moser: This change seems to benefit all parties involved. Zuckerberg’s move could improve transparency and foster a thriving community focused on accurate information. While it’s not a flawless solution, it’s shown success in platforms like X (formerly Twitter) and is likely a cost-effective method to gather information from the community.

Ron Gross: I’ve been a long-term Meta Facebook investor and have no immediate plans to sell. At 25 times earnings, I view this as a fair valuation. However, the implications of this decision may carry risks that investors should consider.

Dylan Lewis: We understand user experiences on X but lack insight into the financial repercussions. Time will tell. Jason, Ron, we’ll reconnect later in the show. Up next, we’ll hear about the State of Real Estate in 2025 from BiggerPockets’ Dave Meyer. Stay tuned to Motley Fool Money.

Welcome back to Motley Fool Money. I’m Dylan Lewis. At Motley Fool, we discuss various investment opportunities, including real estate. To gain deeper insights into this market, my colleague Matt Argersinger spoke with Dave Meyer, the head of real estate investing at BiggerPockets. They explored Dave’s annual analysis of the real estate market and identified why some thriving areas in 2025 may not align with major population surges.

Matt Argersinger: Dave, in your report, you describe the state of real estate investing as transitionary. Can you clarify what this means? Specifically, what is the market transitioning from and to?

David Meyer: I believe real estate operates in cycles similar to other markets, though these cycles might not be as apparent as those in the stock market or the broader economy. Nevertheless, traditional phases such as expansion and peak are also observed in real estate.

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Real Estate Recovery: Signs of a New Era Ahead

The housing market seems to be moving towards a shift after years of stagnation. As we approach 2025, many believe we are at the end of the last “real estate recession.” A recent analysis indicates that while current conditions appear tough, increased transactions and an uptick in inventory may be on the horizon. In fact, home sales and availability have been severely impacted, with transaction volumes dropping 50% since 2022. Many are hopeful that the market is finally primed for a recovery.

Challenging Times in Home Transactions

In discussions surrounding the real estate slump, one significant point arises—the low rate of existing home sales. Presently, we are witnessing the lowest annual sales volume since the global financial crisis. What factors contribute to this sluggish activity?

Affordability: The Core Issue

According to David Meyer, a leading expert in the housing market, affordability stands as the primary barrier to home buying. Affordability includes a complex interplay of home prices, wages, and mortgage rates. Over the last three years, affordability has significantly declined due to rising property values and soaring mortgage rates. This has caused two major impacts: reduced demand and decreased supply of homes.

Most homeowners looking to sell also wish to buy another home, and the current unfavorable buying conditions have caused many potential sellers to hold off. It’s a classic supply-and-demand issue, where both the supply and demand for homes have fallen, leading to a significant drop in market activity.

Interest Rates and Market Recovery

Despite the Federal Reserve’s efforts to ease financial conditions, including rate cuts expected later this year, the path to a robust recovery in existing home sales may remain slow. Meyer’s analysis suggests that behavioral changes in the market often stem from two main forces: opportunity and necessity. Life transitions such as job changes or family adjustments remain constant, serving as potential drivers for market activity.

Inventory levels seem to have reached a bottom and are starting to increase, with a slight uptick in transactions noted. If mortgage rates were to decrease further, it could provide a substantial boost to the ongoing recovery.

Should Investors Wait for Lower Rates?

The pressing question for real estate investors is whether they should wait for mortgage rates to drop before making a purchase. Interestingly, Meyer advises against waiting, citing two key reasons. First, there isn’t much optimism that rates will significantly drop this year. While the Federal Reserve may cut rates, mortgage rates closely follow the yields on 10-year treasuries rather than the federal funds rate.

Second, despite some predictions of flat home prices, many expect nominal price increases in the upcoming year. By acting now, buyers can start paying down their mortgages and benefit from any potential appreciation in the market. Real estate has historically proven to be a solid investment, especially as a hedge against inflation.

In summary, while the real estate market faces challenges, signs suggest that recovery could be on the way. Potential buyers and investors may find that taking action sooner rather than later could yield beneficial outcomes.

Shifting Trends in Real Estate: Analyzing Price Changes and Investment Strategies

Real estate investors are experiencing price fluctuations, particularly in coastal and legacy markets, while adapting to new strategies for success.

Matt Argersinger: Let’s discuss home prices and values more thoroughly. The latest report shows surprising year-over-year price increases primarily in coastal regions and legacy markets. Locations like California, the Northeast, and the Midwest have seen demand shift back after a surge in the Sunbelt states, including Texas and Arizona, during the pandemic. What has triggered this change? Was there too much new construction in places like Austin, Texas, leading to an oversupply?

David Meyer: A significant factor is that many Sunbelt markets, along with certain Mountain West areas, have experienced a sort of ‘success problem.’ Following the migration to these regions in 2020 and 2021, home prices skyrocketed, leading developers to ramp up construction. As a result, there is currently a high volume of new multifamily units being completed, with deliveries at a 50-year peak. This trend will continue through the first half of 2025 and then will likely slow down. At present, the housing market is in transition.

This year may bring challenges for Texas and Florida, which could see a dip in prices — although not a significant crash, instead merely a slight decline of 2 or 3%. In contrast, more stable regions like the Midwest and New York have shown steady demand without such extensive new construction, allowing prices there to rise. While I foresee some moderation in price increases in those areas, they will likely continue to grow, particularly in nominal terms.

Matt Argersinger: As we wrap up, aside from reviewing the report and joining BiggerPockets, what advice do you have for investors who want to become more active in physical real estate in 2025? Tips for someone considering their first rental property or a duplex would be especially helpful.

David Meyer: Real estate is fundamentally a long-term investment. I typically look for deals that will pay off in a decade or more. It’s essential to choose quality properties in up-and-coming neighborhoods. Given today’s uncertain economic landscape, it’s crucial for investors to think beyond immediate market fluctuations. Similar to the stock market, if property values dip or remain flat temporarily, that’s merely a paper loss. Real estate still provides benefits like cash flow and tax advantages. Many beginners fixate on property values when they should also consider the consistent returns that can be realized, even with flat property prices. Historically, the median home price in the U.S. has exhibited an upward trend. Keeping a long-term perspective will help investors find good deals even in a tough market.

Matt Argersinger: Thank you, Dave Meyer from BiggerPockets, for your insights on Motley Fool Money.

David Meyer: Thank you for having me.

Rick Engdahl: Listeners can catch Dave on the BiggerPockets Market podcast for more real estate investing resources at biggerpockets.com. After a short break, Jason Moser and Ron Gross will return to discuss some stocks on their radar this week. Stay tuned to Motley Fool Money.

Dylan Lewis: As always, participants on the program may have positions in the stocks they discuss, and the Motley Fool may have specific recommendations regarding those stocks. Investment decisions should not be made solely based on what you hear. All personal finance content adheres to Mot Fool Editorial standards and is not influenced by advertisers. Motley Fool only recommends products it believes in.

I’m Dylan Lewis, joined again by Jason Moser and Ron Gross. Let’s dive into this week’s radar stocks. Each of you brings a stock to discuss, and Rick Engdahl has a question for you. Jason, you go first; what stocks are you watching?

Jason Moser: This week, I’m focusing on Paylocity, ticker PCTY. Next Wednesday, we have an AI event for all U.S. premium members, and I will discuss Paylocity as part of that. Paylocity provides cloud-based human capital management and payroll software solutions. They serve smaller businesses that may lack access to affordable and comprehensive solutions.

Paylocity is also integrating AI into its services, including AI-driven schedule optimization, which addresses employee needs, and AI learning recommendations that support employee development. The company maintains positive cash flow, even after accounting for stock-based compensation, and has a net margin exceeding 15% over the past year, making it an intriguing investment opportunity.

Dylan Lewis: Rick, do you have a question about Paylocity, ticker PCTY?

Ron Gross: I like to research companies on their websites and found their “Paylocity Difference” claim to be quite general. Does this company have a competitive edge?

Jason Moser: It’s definitely a competitive market, so I wouldn’t necessarily call it a ‘moat.’ However, Paylocity’s focus on smaller businesses seeking cost-effective solutions stands out. Importantly, founder Steve Sarowitz has led the company with an innovative approach that helps maintain its relevance in a challenging industry.

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Evaluating Gannett: Adapting Amidst Declining Print Revenue

Dylan Lewis: Ron Jason explores future possibilities, riding the AI wave with his radar stock this week. What direction are you headed?

Ron Gross: I’m casting a glance backward at Gannett, thanks to insights from our Value Hunter Service—ticker symbol GCI. This media company is perhaps more commonly recognized for owning USA Today, but it also manages hundreds of regional outlets, including the Arizona Republic, Cincinnati Inquirer, and Detroit Free Press. Gannett primarily generates revenue through subscriptions and advertising. However, many believe that the traditional newspaper industry is in decline, and I tend to agree. For instance, Gannett’s revenue dropped from $2.2 billion in 2020 to $1.3 billion in 2023 as both readers and advertisers have increasingly moved online. The silver lining is that Gannett is evolving into a content business, focusing on games, puzzles, as well as sports coverage at high school and college levels. They’ve even hired full-time reporters to cover popular artists like Beyoncé and Taylor Swift. This strategy shifts away from the traditional newspaper model and leans towards a higher-margin business model, positioning Gannett as a potentially interesting value investment from our Value Hunters team.

Dylan Lewis: Ron, since you’re a fan of Taylor Swift, it makes sense Gannett came up today. Rick, what’s your take on Gannett, ticker GCI?

Rick Engdahl: My mentor, David Gardner, taught me to back the world I want to see. Is a future with local newspapers consolidated under a company like Gannett ideal? Might that be a factor in the decline of the press?

Ron Gross: The primary issue lies with the Internet.

Rick Engdahl: It’s the primary issue, but it isn’t the only one.

Jason Moser: I also appreciate the concept of small-town newspapers. As Warren Buffett has observed, this remains a challenging environment for them.

Dylan Lewis: Rick, which stock are you adding to your watch list this week?

Rick Engdahl: I aim for returns, so I’ll be focusing on Lawson.

Dylan Lewis: Fantastic! Thank you, Jason and Ron, for your radar stock insights. Listeners, if you wish to join Stock Advisor ahead of the AI Summit and get access to the Wednesday content, visit fool.com/signup. You can also listen to today’s podcast version, which we will link in the show notes. That wraps up this week’s Motley Fool Money Radio Show. The show is mixed by Rick Engdahl. I’m Dylan Lewis. Thanks for tuning in. We’ll catch you next time.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, also serves on The Motley Fool’s board. Randi Zuckerberg, who previously held a position at Facebook and is the sister of Meta Platforms CEO Mark Zuckerberg, is also a board member. Dylan Lewis holds no positions in the stocks mentioned. Jason Moser has stakes in Adobe, Alphabet, Amazon, and Walt Disney. Rick Engdahl has investments in Adobe, Alphabet, Amazon, Meta Platforms, and Walt Disney. Ron Gross holds shares in Amazon, Meta Platforms, and Walt Disney. The Motley Fool is invested in and recommends Adobe, Alphabet, Amazon, Meta Platforms, Paylocity, Ulta Beauty, and Walt Disney. Additionally, The Motley Fool recommends Delta Air Lines, Gannett, and Southwest Airlines. The Motley Fool follows a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.

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