Executive Summary / Key Takeaways

• Hilton's asset-light, fee-based business model, underpinned by its strong brand portfolio and loyalty program, provides significant resilience and high margins, enabling robust free cash flow generation despite macroeconomic fluctuations.
• The company continues to demonstrate strong development momentum, achieving 7.2% net unit growth in Q1 2025 and expanding its pipeline to over 503,000 rooms, with nearly half under construction, positioning it for sustained future growth.
• Recent financial performance in Q1 2025 showed RevPAR growth led by group and business transient, with Adjusted EBITDA and EPS exceeding expectations, supported by better-than-expected non-RevPAR driven fees from strategic partnerships.
• Management guidance for full-year 2025 anticipates system-wide RevPAR growth of 0% to 2%, reflecting current demand trends and macro uncertainty, but expects continued outperformance from the group segment.
• Hilton's strategic focus on conversions, international expansion, and enhancing its technology platform and loyalty program provides a competitive edge, particularly in challenging development environments, driving disproportionate share gains.

The Strength of the Network: Building on a Century of Hospitality

Hilton Worldwide Holdings Inc. stands as one of the preeminent global hospitality companies, operating across managing, franchising, owning, and leasing hotels and resorts, alongside licensing its valuable intellectual property. Founded in 1919, the company has strategically evolved its business model over time, notably shifting towards an asset-light, fee-based structure. This transformation has been pivotal, significantly enhancing operating and gross margins and providing a foundation of resilience that has proven effective through various economic cycles, including the significant disruption of the COVID-19 pandemic. Emerging from that period, Hilton demonstrated its operational agility, achieving EBITDA margins over 1000 basis points higher than prior peaks, a testament to increased efficiency and strategic adaptation.

In the competitive global lodging landscape, Hilton operates alongside major players like Marriott International (MAR), Hyatt Hotels Corporation (H), and InterContinental Hotels Group (IHG). While Marriott International holds the largest market share by room count, Hilton maintains a significant presence, estimated at 10-15% globally, and has consistently grown its market share over the past two decades. Its competitive positioning is anchored in its diverse portfolio of 24 brands spanning luxury to focused service, its vast global footprint across 139 countries, and the strength of its Hilton Honors loyalty program.

A key differentiator for Hilton lies in its technological capabilities, particularly centered around the Hilton Honors program and its integrated digital platforms. This technology serves as a critical engine for driving direct bookings, enhancing customer loyalty, and providing valuable data insights. The platform facilitates personalized guest experiences from booking through post-stay, aiming to reduce customer acquisition costs and increase repeat business. While specific quantitative metrics on the performance of every technological feature are not detailed, the strategic intent is clear: to create a seamless, intuitive digital journey that strengthens the network effect between guests, hotels, and the Hilton system. This technological infrastructure supports sophisticated revenue management and marketing efforts, contributing to the ability to maintain pricing power and optimize occupancy across the portfolio. The company also invests in R&D for new technologies, including exploring the use of AI to enhance the guest experience and operational efficiency, aiming to leverage data analytics for mass customization of stays. This focus on technology is foundational to Hilton's strategy, supporting its competitive moat by fostering loyalty and operational efficiency, which in turn contributes to financial performance through potentially higher average daily rates and lower distribution costs compared to competitors relying more heavily on third-party channels.

The broader industry currently faces macroeconomic crosscurrents, including elevated inflation and interest rates, which have introduced uncertainty and impacted development timelines. Demand patterns have shown variations by segment and region, with leisure normalizing from post-pandemic highs and business transient and group showing more consistent recovery. Geopolitical events and potential shifts in trade and travel policies also present risks. However, underlying economic indicators like employment and corporate balance sheets remain relatively strong, providing a complex backdrop for the travel sector.

Performance and Growth Momentum

Hilton's performance in the first quarter of 2025 demonstrated the resilience of its model amidst this uncertain environment. System-wide comparable RevPAR increased by 2.5% year-over-year on a currency-neutral basis. This growth was primarily driven by a strong start to the year in January and February, although broader macroeconomic uncertainty intensified in March, particularly impacting leisure demand. Segment performance was led by group travel, which saw an increase of over 6% year-over-year, benefiting from strength in urban markets and company meetings. Business transient RevPAR also grew by 2%, supported by solid performance from small and medium-sized businesses, which constitute a significant portion (approximately 85%) of this segment. Leisure transient RevPAR increased by a more modest 1%, reflecting the softening demand patterns observed as the quarter progressed.

Financially, Hilton reported Adjusted EBITDA of $795 million for the first quarter of 2025, exceeding the high end of its guidance range. This outperformance was primarily attributed to better-than-expected growth in non-RevPAR-driven fees and favorable timing items. Diluted EPS adjusted for special items was $1.72.

Breaking down the segment contributions for the three months ended March 31, 2025:

• The Management and Franchise segment generated revenues and Adjusted EBITDA of $804 million, a 5.1% increase from $765 million in the prior-year quarter. This growth was fueled by a 9.5% increase in franchise and licensing fees to $625 million, driven by higher RevPAR at comparable franchised hotels and a net increase from hotel additions, alongside a $34 million increase in licensing fees from strategic partnerships (like co-branded credit cards and HGV (HGV)). Total management fees decreased 9.1% to $160 million, largely due to a $20 million decrease in termination fees, partially offset by higher RevPAR at comparable managed hotels.
• The Ownership segment reported revenues of $234 million, down 8.2% from $255 million in the prior-year quarter, and Adjusted EBITDA of $8 million, a significant decrease from $15 million. The decline in ownership revenues was due to both currency fluctuations and a decrease from non-comparable consolidated hotels that exited the system or changed ownership types. Ownership expenses decreased by 3.2% to $239 million.

Beyond current performance, Hilton's development engine remains a core driver of value. The company achieved net unit growth of 7.2% year-over-year as of March 31, 2025. The development pipeline expanded to over 503,000 rooms across 3,600 hotels in 123 countries, representing a 7% increase year-over-year and sequential growth. Notably, nearly half of the pipeline is currently under construction, a figure management highlights as more rooms under construction than any other hotel company, accounting for over 20% of the industry share. In Q1 2025 alone, Hilton opened 186 hotels (20,100 rooms) and approved 32,600 rooms, up 10% year-over-year. Conversions played a significant role, making up approximately 40% of openings, driven by brands like Doubletree and Spark. International markets were strong, representing half of new additions and featuring brand debuts in Greece, Africa, Germany, and Poland. Strategic acquisitions like Graduate and NoMad in 2024 and partnerships like Small Luxury Hotels of the World and AutoCamp have further enhanced the portfolio and expanded reach in key segments like luxury and lifestyle, which now approach 1,000 hotels globally and accounted for 30% of Q1 openings.

Liquidity remains robust, with $807 million in cash and cash equivalents as of March 31, 2025.

The company has access to a $1.9 billion Revolving Credit Facility, with no borrowings outstanding as of the end of the quarter. Total indebtedness stood at approximately $11.2 billion.

Hilton actively manages its capital structure, including share repurchases ($890 million in Q1 2025, with $3.5 billion remaining authorization) and dividends ($0.15 per share declared in Q1 2025). The company plans to use available cash and a $500 million borrowing under the Revolving Credit Facility to repay the May 2025 Senior Notes maturity.

Competitive Positioning and Outlook

Hilton's competitive strategy leverages its scale, brand equity, and operational efficiency, particularly within its dominant management and franchise segment. Compared to Marriott International, the largest player, Hilton's asset-light model results in a higher free cash flow margin (25-30% vs. MAR's 12-15%), indicating greater efficiency in converting revenue to cash. While Marriott International may hold an edge in sheer scale and market share capture in certain emerging markets, Hilton's focused development engine, particularly its ability to drive conversions (40% of Q1 2025 openings), allows it to add units rapidly, often taking a disproportionate share of conversion opportunities in challenging development environments. This is partly cyclical, as constrained capital makes conversions more attractive, but also structural, driven by the perceived strength and financeability of Hilton's brands and the power of its loyalty program to drive performance for owners.

Against Hyatt Hotels Corporation, which focuses more on upscale and luxury, Hilton offers a more diversified portfolio and a larger loyalty base (218 million Hilton Honors members), contributing to higher customer retention. While Hyatt Hotels Corporation may show innovation speed in certain tech areas, Hilton's integrated platform and loyalty program provide a significant competitive moat, supporting higher pricing power and lower customer acquisition costs.

Compared to InterContinental Hotels Group, a strong competitor in franchising and mid-scale, Hilton's portfolio breadth and focus on loyalty-driven efficiency contribute to competitive ROE (80-100% vs. IHG's 150-200%, noting IHG's higher leverage can inflate ROE) and ROIC (15-18% vs. IHG's 15-20%). While InterContinental Hotels Group may exhibit leaner operating costs in some areas, Hilton's brand strength and loyalty program are designed to drive superior top-line performance for owners, which is critical in attracting and retaining franchise partners.

Indirect competition from alternative lodging platforms like Airbnb (ABNB) continues to pose a threat, particularly in urban and leisure segments, by offering potentially lower prices. Hilton counters this through its branded consistency, service standards, and integrated loyalty benefits, which appeal to different traveler needs and preferences.

Looking ahead, Hilton's management provided guidance for the second quarter and full-year 2025. For Q2 2025, system-wide RevPAR growth is expected to be roughly flat year-over-year, influenced by the shift of the Easter holiday. Adjusted EBITDA is projected to be between $940 million and $960 million, with diluted EPS adjusted for special items between $1.97 and $2.02.

For the full-year 2025, Hilton forecasts system-wide RevPAR growth of 0% to 2%. The midpoint of this range assumes current demand trends continue, with the upside potential linked to a modest improvement in the second half of the year and the downside reflecting potentially deteriorating conditions. Management expects group travel to continue outperforming transient segments. Regionally, U.S. RevPAR growth is anticipated around the midpoint of the system-wide range, Americas excluding U.S. in the mid-single digits, Europe in the low single digits, MEA in the mid-single digits, and Asia Pacific in the low single digits (assuming flat RevPAR in China).

Full-year 2025 Adjusted EBITDA is guided to be between $3.65 billion and $3.71 billion, and diluted EPS adjusted for special items is expected between $7.76 and $7.94. This guidance reflects the anticipated RevPAR performance and continued strong net unit growth, which is expected to be between 6% and 7% for the year, driven by the robust pipeline and conversion momentum. The company plans to return approximately $3.3 billion to shareholders in 2025 through buybacks and dividends.

Key risks to the outlook include the potential for prolonged macroeconomic uncertainty to further pressure demand, particularly in leisure and potentially impacting business transient if conditions worsen. Elevated interest rates could continue to challenge new development, although Hilton's focus on conversions helps mitigate this. Geopolitical risks and foreign currency fluctuations also remain factors that could impact results. However, management expressed confidence in the business model's ability to navigate these challenges, leveraging its strong brand equity, loyalty program, and diversified global presence.

Conclusion

Hilton's investment thesis is fundamentally rooted in its highly profitable, asset-light management and franchise model, which generates substantial free cash flow and is poised for continued expansion through a robust global development pipeline. Despite facing a macroeconomic environment marked by uncertainty and normalizing demand patterns, particularly in leisure, the company's strategic focus on capturing a disproportionate share of conversion opportunities and expanding its footprint in high-growth international markets is expected to drive sustained net unit growth. The first quarter 2025 results, demonstrating RevPAR growth led by resilient segments and outperformance in non-RevPAR fees, underscore the operational strength and flexibility of the business. While the near-term RevPAR outlook reflects current market conditions, the long-term growth trajectory, supported by a large pipeline with significant rooms under construction and enhanced by strategic brand additions and technological capabilities, remains compelling. For investors, Hilton represents a resilient hospitality leader leveraging its brand power, loyalty program, and efficient operating model to deliver consistent bottom-line growth and significant capital returns, even as it navigates potential headwinds.