Based in Austin, Texas, HomeAway (proposed AWAY) is scheduling a $204 million IPO with a market capitalization of $2.04 billion at the price range mid-point of $25.50 for Wednesday, June 29. The full IPO calendar includes four IPOs.
AWAY is the world’s largest online vacation rental company. During March 2011, AWAY’s websites attracted 9.5 million unique visitors. A substantial portion of historical growth is from acquisitions. Only 19% of the IPO proceeds are allocated to AWAY, so this IPO is essentially an insider bailout.
AWAY may have already acquired the low hanging fruit in the business, which means the supply of additional, perhaps synergistic companies may be limited.
AWAY's organic internal growth rate is only 30%. AWAY’s proposed price-to-tangible book value of 49 is very high for a service business that may be impacted by such online travel heavyweights as such as Expedia (EXPE), Hotels.com (owned by EXPE), Kayak, Priceline (PCLN), Orbitz (OWW) and Travelocity (70% owned privately-held Sabre Holdings Corp), some of whom are now expanding into the vacation rental category.
Other financial ratios for the 12 months ended March 2011 include:
- Price to free cash flow, 38.
- Price to EBITDA, 64.
- Price to sales, 11.
- Price to earnings, 408.
A 30% internal growth rate is not enough to justify any of the above valuation metrics. Therefore, it seems that investors should stay away from Home Away.
AWAY says it generated $17 million in free cash flow for the March quarter (S-1 page 44). AWAY defines “free cash flow as our cash provided by operating activities, adjusted for cash interest expense and income, and subtracting capital expenditures” (S-1 page 44). But AWAY can’t stop capital expenditures, so its definition of free cash flow is not satisfying.
EBITDA for the March 2011 quarter was $10 million; half came from depreciation and half came from stock-based compensation. The percentage of EBITDA to free cash flow is 10/17, almost 60%. The free cash flow for the 12 months ended March 2011 is $53 million, so assuming 60% is from EBITDA, then AWAY generated 60% times $53 million or about $32 million in EBITDA for the 12 months ended March 2011.
The price to EBITDA ratio for the 12 months ended March 2011 is then market cap divided by EBITDA = $2 billion divided by $32 million = 64. 64 is a very high EBITDA ratio for a service company with only a 30% internal growth rate.
AWAY operates the world’s largest online marketplace for the vacation rental industry. Vacation rentals are fully furnished, privately owned residential properties, including homes, condominiums, villas and cabins, that can be rented on a nightly, weekly or monthly basis. AWAY’s vacation rental properties are located in over 145 countries around the world.
According to comScore’s March 2011 Media Metrix Media Trend Report, in 2010 AWAY’s websites attracted over 220 million website visits and averaged over 9.5 million unique monthly visitors. As of March 31, AWAY’s global marketplace included more than 560,000 paid listings of vacation rentals.
Acquisitions have been integral to AWAY’s revenue growth. AWAY has increased revenue organically, 42%, 32%, 29% and 30% respectively for 2008, 2009, 2010 and the three months ended March 31.
There are thousands of vacation rental listing websites in the United States and Europe that compete directly with AWAY, such as FlipKey (owned by Expedia), Interchalet, InterHome, James Villas, TripAdvisor (owned by Expedia) and Wyndham Worldwide (WYN). Many of these websites offer free or heavily discounted listings or focus on a particular geographic location or a specific type of rental property. Some of them also aggregate property listings obtained through various sources, including the websites of property managers, some of whom also market their properties on its websites.
AWAY also competes with large Internet companies such as craigslist, eBay (EBAY), Google (GOOG), MSN.com (MSFT) and Yahoo (YHOO), which provide listing or advertising services in addition to a wide variety of other products or services.
Other companies address the fragmented travel lodging market, such as AirBed & Breakfast, Inc. in the United States and 9Flats.com in Europe, which list rooms to rent or allow advertisers who want to rent their homes occasionally instead of for a vacation season or full time. Some vacation rental property owners also list on these websites, and consequently these companies could become its competitors.
In addition, competitors such as Perfect Places, Inc. and Packlate.com, Inc. serve the professional management marketplace for vacation rentals exclusively, and therefore have the capability of creating more targeted products and features for property manager constituents.
Shareholders intends to sell 2.1 million shares. AWAY intends to sell 5.9 million shares to net $137mm at the price range mid-point of $25 -- $98 million to redeem preferred stock and pay accrued dividends and the balance for general corporate purposes.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.