The Most Interesting Internet IPO I've Seen This Year

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Forget LinkedIn (Nasdaq: LNKD  ) , Renren (Nasdaq: RENN  ) , and (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:

  1. 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.
  1. 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.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the stocks mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

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Read/Post Comments (5) | Recommend This Article (13)

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 June 17, 2011, at 1:21 PM, seetheworldmom wrote:

    I agree that HomeAway is wonderful. I used it in Aug. 2009 to find wonderful apartment in Paris for my family of 5 for 10 day vacation. HomeAway connected me to Check it out. Very well-run business.

  • Report this Comment On June 19, 2011, at 5:04 PM, MegaEurope wrote:

    Very interesting. I was just wondering today who owned, which my family just used to book our Christmas vacation.

    However count me out on the AWAY IPO - it is expected to trade around 12x sales and 118x earnings.

    It fits in with the shared asset model that Netflix, Netjets, Zipcar and others are using to dramatically disrupt their industries. Although the valuations of these companies are suspect, I wonder what other companies will fit into this trend.

    By the way, given the high valuations at these companies, it certainly seems like Berkshire should IPO Netjets.

  • Report this Comment On June 25, 2011, at 7:06 PM, TMFDukenewkirk wrote:

    As a long time, timeshare owner, I can certainly see the benefit of HomeAway from a consumer standpoint. Frankly, Timeshares by comparison are a tremendous waste of money. However, as far as jumping into a grossly overvalued IPO, can't see myself doing that. Maybe after the dust settles it will prove a worthwhile investment.

    Will certainly direct friends and family to though.

  • Report this Comment On July 01, 2011, at 2:20 PM, Bonefish100 wrote:

    I think I'll wait for the dust to settle also. There is a tremendous need for this, as I found out when I rented a place in Key Largo last month. Could be very interesting.

  • Report this Comment On July 03, 2011, at 12:37 PM, want2learngirl wrote:

    How do you get in on this ipo. I think Home away will be the future of travel for many families. Although offers a good service for free.

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