Let's say you're planning a summer vacation in Paris and are looking for a place to get some R&R between visiting Le Musee du Louvre and La Tour Eiffel. Most people might go the traditional route of booking a standard hotel room, but a growing number of people are exploring local alternatives. And now investors can grab a part of this growing market.
Based in Austin, Texas, HomeAway (Nasdaq: AWAY ) is a listing site where homeowners and property managers can list properties for travelers. The company recently had a successful IPO and now has a market cap of roughly $3.3 billion.
The company competes with other travel booking sites such as Priceline.com (Nasdaq: PCLN ) , Expedia (Nasdaq: EXPE ) , and Travelzoo (Nasdaq: TZOO ) . HomeAway isn't a one-stop shop like its competitors since it lists only places to stay, so you're on your own getting to your destination.
HomeAway is aggressively growing in the vacation rental market and has been known to be a little trigger-happy with acquisitions, snapping up 17 businesses since inception. The top results for a simple Google search for "vacation rentals" include vacationrentals.com, vrbo.com, homeaway.com, and cyberrentals.com, which are all owned by HomeAway.
This exposure provides the company with an opportunity to cross-sell listings across multiple sites. HomeAway also ta kes a page out of eBay's playbook and charges for additional photos per listing. These additional features and services have helped increase the average revenue per listing from $266 in 2008 to $318 in 2010. Unique visits to the company's websites have also increased from 134 million to 221 million over the same time frame. Over those two years, paid listings have risen from 338,000 to 527,000. Also like eBay, HomeAway has benefited from network effects as a growing number of potential travelers visit, which brings more listings, which in turn brings more visitors, and so on.
These are some pretty healthy underlying business metrics. The next question is whether you're getting a good bang for your buck if you decide to invest. I think the shares are a little too lofty at these levels. One of my favorite valuation multiples is enterprise value-to-EBITDA, since it allows better comparisons between companies that use different amounts of financial leverage. HomeAway's EV/EBITDA ratio is 103.4, compared with Priceline's 26.9, Expedia's 9.6, and Travelzoo's 30.4. HomeAway has a tall order to fill here, especially when you consider that the company is barely profitable, although the business has increased free cash flow from $33.9 million in 2008 to $51.5 million in 2010.
If HomeAway's underlying business continues to perform well and the valuation becomes more reasonable, I would consider buying shares. Until then, HomeAway is not welcome in my portfolio.