Tiger Global Management just disclosed a 5.88% stake in HomeAway, Inc. (NASDAQ:AWAY), which operates an online vacation rental business with listings from 145 countries. In 2010, the company had $167.88 million in sales, a sharp increase from $82.24 million in 2008. This puts the recent company valuation at a price/sales at nearly 20x despite a history of consistent net losses.
AWAY is not that different from other recent IPOs whose rich valuations are largely the result of strong sales growth and furture potential. LinkedIn (NYSE:LNKD) trades at a price/sales of 30.83, Pandora Media (NYSE:P) trades at a price/sales of 18.13 and Yandex NV (NASDAQ:YNDX) trades at a price/sales of 21.84. The stock market appears to have a strong appetite for new, high-growth internet companies.
This is not limited to small and medium capitalization companies. As we previously wrote, GSV Capital Corp.'s (NASDAQ:GSVC) stock price spike following its purchase of 225,000 Facebook shares is one of the first opportunities for the stock market to place a value on the social media giant. While there were obviously several factors in play -- and while we understand that the placement was very modest relative to the full Facebook share float -- GSVC's stock price move implied a Facebook market capitalization of $220 billion.
HomeAway Inc does not have true peers, but does compete directly with traditional hotel operators like Wyndham Worldwide (NYSE:WYN), Marriott International (NYSE:MAR) and Intercontinental Hotels Group (NYSE:IHG). Against these comparisons, AWAY looks extremely expensive.
- WYN has a trailing P/E of 15.85, a forward P/E of 13.39 and a price/sales of 1.54. WYN also had a profit margin of 10.24% and revenue growth of 2.7% in 2010.
- MAR has a trailing P/E of 29.48, a forward P/E of 20.67 and a price/sales of 1.14. MAR also had a profit margin of 4.02% and revenue growth of 7.1% in 2010.
- IHG has a trailing P/E of 21.24, a forward P/E of 15.70 and a price/sales of 3.72. IHG also had a profit margin of 17.75% and revenue growth of 5.9% in 2010.
There is no question that AWAY presents a great opportunity. The company is a market leader in a growing market. In addition, its business model offers tremendous leverage to the upside as the market grows and consolidates. Still, we think investors should be cautious. The company is enticing but the stock price is priced for perfection. In addition, the company's web traffic in the quarter ending March 31 dropped to 60 million visits compared to 62 million in the quarter ending March 31, 2010. To this point, this drop in visits has been masked by a healthy growth in listings and revenues per listing ... but for a company at these valuations, investors may expect growth across all business metrics.
Tiger Global Management was founded by former Tiger analyst Charles "Chase" Coleman in 2001. As of March 31, the fund had around $4 billion in assets under management. The successful fund gravitates towards global, high growth companies and they are not afraid to purchase securities at high valuations. Tiger invested in LinkedIn at a $2 billion valuation while it was still private and has a stake in Facebook. Some of its largest public positions include Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Mercadolibre (NASDAQ:MELI), priceline.com (NASDAQ:PCLN) and Viacom (NYSE:VIA).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.