This Is Not My Beautiful HomeAway

A rental property was vandalized, and HomeAway (Nasdaq: AWAY  ) shareholders are paying the price.

The stock has shed nearly 12% of its value since the ransacking story was posted Wednesday on popular blog TechCrunch. Ready for the clincher? We're not even talking about a HomeAway listing. It's HomeAway rival Airbnb that's dealing with a bruised reputation after mishandling the mother of all horror stories.

If you're not familiar with Airbnb, you're probably not an adventurous yet thrifty traveler. Airbnb allows folks to rent out rooms or entire homes to guests for short-term stays. It is entirely free to list on Airbnb, explaining why the new site has quickly accumulated tens of thousands of listings. If a booking is successful, the owner of the property will keep 97% of the proceeds to cover processing costs. Renters pay Airbnb 6% to 12% on top of the rental rates.

The model sounds quirky, but it's been a viral rock star. The company recently raised $112 million in its latest financing round, valuing the company at roughly $1.3 billion.

However, all of that is debatable after a single incident has blown up in Airbnb's face. Back in June, someone rented out an apartment for a few days while the owner was away. The owner returned to find her home gutted. Valuable belongings were swiped, personal identification was likely photocopied, and the place was completely trashed.

Horror stories of folks getting cheated on eBay (Nasdaq: EBAY  ) have been around for years, but the damage is typically limited to the value of the item. An entire apartment that was rented on the cheap was virtually destroyed here.

Airbnb blew it by waiting until the media firestorm erupted in recent days before rolling out a new policy yesterday. All rentals will now carry the Airbnb Guarantee, offering up to $50,000 in protection for the theft or vandalism or personal property.

Problem solved? Not so fast. Isn't a $50,000 guarantee going to bring out the worst in fraudulent property owners? Isn't the fact that this story is getting so much play going to draw more burglars and identity thieves into the Airbnb fold? A single incident -- rare as it may have been -- may be enough to spook owners from making listings, nipping this viral wonder in the bud.

Some would argue that Airbnb's pain would be HomeAway's gain, but won't property owners be just as wary of lending out their vacation homes?

HomeAway offers insurance at a premium to both renters and owners, and this incident may actually encourage more users to pay extra for protection. It may be a nuisance for property owners who are already shelling out $295 a year to list on HomeAway, but it may also transform peace of mind into a lucrative profit center for the company.

The sharing trend is undeniable. Whether it's Zipcar (Nasdaq: ZIP  ) with cars, Coinstar's (Nasdaq: CSTR  ) Redbox with DVDs, or even Berkshire Hathaway's (NYSE: BRK-B  ) (NYSE: BRK-A  ) Netjets with private jets, there are juicy models out there that revolve around sharing ownership of an underutilized asset.

Airbnb's unfortunate incident is drawing attention to the sharing model's downside, but it's also giving potential HomeAway investors a shot to buy into a fast-growing company at a compelling price.

Have you ever used HomeAway, VRBO, or Airbnb for a getaway rental? What did you think? Share your thoughts in the comments box below.

The Motley Fool owns shares of Berkshire Hathaway and Zipcar. Motley Fool newsletter services have recommended buying shares of Coinstar, Berkshire Hathaway, eBay, and Zipcar. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is finally done with his summer getaways. He owns shares in Zipcar and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On August 03, 2011, at 8:28 AM, tommuller2000 wrote:

    I have been using HomeAway to rent my cottage for several years and the worst thing a renter has done was to break an antique salad bowl and put it in the trash without telling me (so I could have it repaired). The people that use this service are generally generally reliable middle-class families that treat the property as their own. We rent for full weeks only and require prepayment, but no security deposit. As I write this, the cottage is occupied by a HomeAway renter.

  • Report this Comment On August 03, 2011, at 7:13 PM, timesharejuice wrote:

    This magnifies my point about the difference between private listings and professionally managed vacation listings. I've been talking about this for months now. There is a big inherent challenge in this business model. No, it's not the same as EBay. It's much more personal and much more at risk having someone stay in your "place". And having a place trashed is not the worst that can happen.

    Here's what I mean: In this situation, it was person to person transaction. On the flip side of vacation rentals is when someone rents or trades a timeshare. With a timeshare, the property is Professionally managed with a professional property management team and security team etc. When the guest arrives they are greeted with a front desk and their safety is in the hands of a (e.g. Marriott or Hilton) security guard team.

    This is a big challenge for the airbnb and homeaway teams to work on. I don't know if the $50k policy solves this.

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