Why HomeAway Gapped Up

Jul.25.14 | About: HomeAway, Inc. (AWAY)

Summary

HomeAway beat revenue estimates and guided up, as expected.

Performance listings drove the upside.

Its unclear if this is a step-up or inflection point.

HomeAway (NASDAQ:AWAY) reported earnings that beat expectations, as revenue of $114.3 million beat the $110.4 million estimate and EPS of $0.15 came in line. Revenue guidance of $114.5-116.5 million was better than the projected at $113.6. On July 21st, we highlighted HomeAway as a potential breakout candidate in tech, and the stock is on its way.

Greater than 1 million listings

The highlight of the quarter will be listings that exceeded 1 million for the first time, due to the increase in performance-driven listings. Two quarters ago, HomeAway began offering an alternative to its subscription model for home owners that didn't want to pay for a full year, with the expectation that the cost would work itself out over time. This addition is incremental to the company's subscription listings, and was rolled out in Europe to the company's largest partners this quarter.

Growth and profitability accelerating

Two of the most important metrics were up in the quarter: listing growth and revenue per listing. The total revenue per listing increased to $95, up from $75 in the year-ago quarter, as the growth rate of listings also increased. Listings growth accelerated to 34% in the June quarter, up from 28% in the March quarter. In short, the number of listings is not only growing, they are contributing more to the top line as well. Free cash flow of $114 million on a trailing 12-month basis was up 25%, and operating profit grew even faster at 58%, albeit off of a small base.

Economic weakness in Europe is an issue

The company did mention that it is seeing weakness in Europe, but believes it is macro-related, and has the levers to pull in order to improve efficiency. If the economy deteriorates from there, though, it will likely show up in closure rates quickly, causing a migration away from subscription.

Inflection point or step-up?

In all, financial results are clearly improving since this change, but it is unclear whether this represents an inflection point or a step-up in revenue. Depending on your point of view, this could have a substantial impact on your expectation for sustainable growth and price target.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.