Forget LinkedIn (Nasdaq: LNKD ) , Renren (Nasdaq: RENN ) , and Youku.com (Nasdaq: YOKU ) . Forget Pandora Media (NYSE: P ) , too. The most interesting Internet IPO I’ve seen this year -- outside Boingo Wireless (Nasdaq: WIFI ) -- is HomeAway, a vacation-rentals aggregator that's due to go public within weeks.
I'm interested both as an investor and as a dad to a severely food-allergic son. Why? We need kitchen facilities when we travel as a family. Most hotel rooms don't offer full kitchens, and those that do charge presidential-suite-type rates to get access to these decked-out pads. I'd be stuck -- pay through the nose for more than we need, or figure out a staycation that won’t bore the kids. HomeAway relieves me of this unattractive choice.
Here's how I see the company sustaining a competitive advantage:
- Scale. As of March 31, HomeAway had more than 560,000 paid listings on its global portfolio of vacation-rental sites. More than 9.5 million monthly visitors browsed its listings last year, the company says in its S-1. My own tests showed multiple options in various parts of the globe, including a luxury condo nearby Fool HQ in Old Town Alexandria, Va. Scale of this magnitude draws in users, which in turns draws in advertisers and property owners. It's a virtuous cycle that fosters growth.
- Usability and connectedness. Using either text or map-based search tools, users can find rental properties just about anywhere in the world and, in some cases, can rent for just one night. Enabling simplicity in this manner -- and creating an attractive marketplace for owners -- has allowed HomeAway to grow revenue 39.6% and free cash flow 59.1% last year.
To be fair, condo and hotel operators have been offering time-sharing plans for about as long as I can remember. Hilton pitches us membership in its Grand Vacations Club at least once quarterly, while Marriott International (NYSE: MAR ) has its own vacation club.
Yet as an industry, time-share spending has dropped almost 40% since 2008 -- from $9.7 billion to roughly $6 billion, USA Today reported in January. By contrast, HomeAway says that vacation rentals accounted for $85 billion in rental income in 2010 and could see significant growth as rentals become easier to find and book. I agree.
HomeAway is disrupting an industry that's already proved ripe for disruption. Call it a potential Rule Breaker at work, one that interests me a lot more than the flavor-of-the-month social-media stocks that have flooded the market in recent months.
Do you agree? Disagree? Let me know what you think using the comments box below. And if you're interested in learning more about how the Internet is transforming business models, take a minute to watch this free video right now. You'll walk away with a stock idea from our Motley Fool Rule Breakers scorecard and a richer understanding of the cloud-computing revolution.