Will You Stay With HomeAway?

Investing decisions are made from a mosaic of data, yet synthesizing what matters can be tough. Enter the Fool poll. We show you the Big Headlines, you tell us what's factoring into your investing decisions and help your fellow Fools in the process.

Shares of HomeAway (Nasdaq: AWAY  ) are trading more than 4% lower today after last night's report of a net loss for the second quarter. Preferred dividends took $8.8 million from the bottom line, turning last year's $0.08-a-share gain into a $0.17-per-share loss.

Fortunately, that's where the bad news ends. Every other metric looks solid to me. To review:

  • Overall revenue improved 40.9% to $58.7 million while listing revenue -- i.e., sales directly related to listing properties at HomeAway's sites -- grew 33.9%.
  • Paid listings grew 19.3% to 626,661, while average revenue per listing increased 13.8% to $339. HomeAway is demonstrating pricing power as it grows.
  • Cash from operations for the first six months of 2011 improved 19.5% to $40.5 million.

To be fair, HomeAway is like Oracle (Nasdaq: ORCL  ) in that acquisitions have long fueled growth. In Q2, the company purchased realholidays.com.au and now boasts the largest inventory of vacation rental listings in Australia. HomeAway's balance sheet includes more than $300 million of goodwill as a result of its acquisitive history.

Yet this doesn't concern me as much as it does other Fools. HomeAway's biggest and most important purchases -- such as VRBO.com -- were completed years ago. In Q2, the company added auto-renewal options to both HomeAway.com and VRBO.com, and already high renewal rates went higher as a result. (Up to 76.2% from 75.1% at the end of last year's second quarter.)

Why? Scale matters to property owners in the same way that scale matters to airlines and hotel chains. The larger the database, the greater the chance an unsold seat or room will find a buyer. This is why priceline.com (Nasdaq: PCLN  ) is so successful, and why Expedia (Nasdaq: EXPE  ) is having its TripAdvisor subsidiary put capital into FlipKey, a HomeAway competitor.

Venture capitalists also love the model. A group of them recently put $112 million into AirBnB, a social network for connecting homeowners and short-term couch crashers. Headline writers appear to see the funding -- and the underlying business model -- as massively disruptive to HomeAway. I'm not buying it. Vacationing families need more than a spare bedroom.

Is today's sell-off reflective of a disruptive shift, or a buying opportunity? You tell me. Please vote in the poll below and then leave a comment to tell us your thoughts about HomeAway's business. You can also add HomeAway to your watchlist for up-to-date analysis on the stock as soon as it's published.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Oracle at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Oracle. Motley Fool newsletter services have recommended buying shares of priceline.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 29, 2011, at 9:05 AM, ceyhun28 wrote:

    The buisness model of AWAY fits into a niche market very nicely. Over the long term this company can grow much more and widen it's margins.

    SInce competition is still a legitimate concern ,I will buy in thirds. I will dip into the first third very soon, by taking advantage over the uncertainty of dept crisis.

  • Report this Comment On July 29, 2011, at 11:27 PM, Stocktradingman wrote:

    I recommended Homeaway approximately ten days ago but have not yet bought any stocks even though I believe that it is an excellent and relatively innovative idea. I believe that the price is a little too high and that it will go down. Since I am a believer in buying low, and since this is a new stock on the market I can wait to see what will happen. Maybe the price will drop low enough and get to the point at which I can be comfortable with making a purchase. Once I buy, I plan to follow the Fool doctrine that stocks should be held for a long time. Hopefully I am approaching this correctly.

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