Source: HomeAway
HomeAway (AWAY.DL) used the occasion of its third quarter results report to announce that Expedia (EXPE 0.33%) has agreed to pay $3.9 billion in cash and stock to acquire the vacation rentals specialist. Upon closing, investors can expect to receive $10.15 in cash and 0.2065 shares of Expedia stock for each share of HomeAway owned.
"We have long had our eyes on the fast growing ~$100 billion alternative accommodations space and have been building on our partnership with HomeAway, a global leader in vacation rentals, for two years," said Expedia CEO Dara Khosrowshahi in a separate press release. "Bringing HomeAway into the Expedia family and adding its leading brands to our portfolio of the most trusted brands in travel is a logical next step."
The deal comes at an interesting time. During the third quarter, HomeAway broke what had been a string of five consecutive quarters of decelerating, sequential revenue growth. Here's a closer look at all the key business metrics from the third quarter:
| Metric | Q3 2015 | Q3 2014 | YOY Growth |
|---|---|---|---|
| Revenue | $130.7 million | $117.1 million | 11.6% |
| Non-GAAP net income | $23.5 million | $18.9 million | 24.3% |
| Adjusted EPS | $0.24 | $0.20 | 20% |
| Cash from operations | $24.64 million | $25.53 million | (3.5%) |
Sources: S&P Capital IQ and HomeAway press release
Commenting on the results, HomeAway CEO Brian Sharples said in a press release:
Today we're announcing business model changes, including the addition of a traveler service fee in mid-2016, which will dramatically change our ability to compete and thrive in the coming years. Better monetization will allow us to accelerate revenue growth, but most importantly will provide more resources for an even better product and service experience for our owners, property managers, and travelers.
What went right: Revenue grew 19.8% year-over-year -- much faster than the table suggests -- if you account for currency fluctuations (HomeAway earned just over 40% of revenue from foreign transactions in 2014). Revenue from paid listings jumped 19.7% after accounting for currency, while the average revenue per listing improved 15.7% to $514. HomeAway's core business is performing well even as it seeks to do more with its massive installed base, which sits at 1.195 million listings as of this writing.
What went wrong: Ancillary revenue from travel insurance and related products grew just 18% to $24.2 million. That wouldn't be so bad if HomeAway hadn't grown this category by 31.9% in the second quarter. The drop may help to explain why HomeAway will be moving to a traveler service fee in mid-2016, initially set at 6% on average. Grabbing a percentage of the gross could sharply increase revenue and profit.
What's next: Investors wondering how this deal will affect Expedia need to look at the larger picture. During an analyst call, Expedia CFO Mark Okerstrom suggests that his company's stewardship could help to nearly triple HomeAway's adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, within three years.
"HomeAway drives an estimated $15 billion a year in travel gross bookings, is growing revenue near 20% year-over-year on a currency-neutral basis and is generating roughly $120 million of annual adjusted EBITDA," Okerstrom said. "With Expedia partnering to accelerated transformation, we believe HomeAway could grow into a business delivering adjusted EBITDA of roughly $350 million by 2018."
For reference, Expedia had produced $702.7 million in EBITDA over the trailing 12 months ended on Sept. 30, per S&P Capital IQ data.
