Seeking Alpha
Research analyst, IPOs, long/short equity
Profile| Send Message|
( followers)  

Backed by a group of well-known VCs that include Austin and Redpoint Ventures, HomeAway (AWAY) operates the world's leading online marketplace for vacation rentals of privately owned homes, condos, villas and cabins. Travelers use HomeAway's sites free of charge to locate, compare and select rentals using its online search tools, content and availability calendars, while property owners can access millions of travelers for a fixed annual fee (typically $300 per listing).

HomeAway plans to raise $204 million by offering 8 million shares (26% insider) at a price range of $24 to $27. At the midpoint of the proposed range, the company will command a market value of $2.2 billion. HomeAway plans to list on the Nasdaq under the symbol AWAY. Morgan Stanley (MS), Deutsche Bank Securities (DB), Goldman Sachs (GS) and JP Morgan (JPM) are the lead managers on the deal, which was expected to price today.

Business

Having spent the past several years aggressively making acquisitions, HomeAway is now the leading player in the highly fragmented vacation rental industry. Its portfolio of 31 websites, which includes HomeAway.com, VRBO.com and VacationRentals.com, attracted 220 million visits last year. In terms of rented properties, it has 10% market share in the U.S. (62% of 2010 revenue) and 8% in Europe (37%). HomeAway generates most of its revenue by charging fixed annual listing fees (91% of 2010 revenue). It also offers other services such as display advertising, property management software, gift cards, property damage protection and traveler insurance (9%).

Financials

For the quarter ended March 31, 2011, revenue grew 44% to $52 million, primarily due to a higher number of paid listings (575,166 vs. 498,895 in the 1Q10) and to a lesser extent, an increase in average revenue per listing ($328 vs. $290). Adjusted EBITDA margins expanded to 20% (vs. 16% in the 1Q10) as a result of synergies created by recent acquisitions and leverage on sales and marketing expenses. Cash flow from operations rose 19% to $21 million.

Risks

Since it was formed in 2004, HomeAway has acquired 17 companies and must continue to effectively manage growth. Its back-end systems have yet to be integrated into a single network, which prevents it from charging a global subscription. According to management, HomeAway's average customer posts a listing on only 1.1 of its 15 major sites. Its biggest site currently presents only 40% of total listing inventory. Lastly, the company faces ongoing competition from numerous vacation rental sites, travel sites, property managers, timeshares, alternative bed and breakfast operators and large Internet companies.

Outlook

Vacation rentals in the U.S. and Europe generated $85 billion in rental income last year; assuming vacation rental sites are able to receive a cut similar to that of hotel and other travel sites (10% "take rate"), management estimates its addressable market to be roughly $8.5 billion. Given that HomeAway booked $318 in average revenue per listing in 2010, only 2.5% of annual rental income (2.5% "take rate"), HomeAway believes it has only reached the tip of the iceberg in terms of monetization potential. In addition to top-line growth, the company should benefit from margin expansion and continued cash flow generation as the business scales. Despite broader stock market weakness, these positives should drive interest in this category leader's IPO.

Source: HomeAway: Booking a Reservation on Nasdaq