As anyone who's hunted for travel accommodation recently is aware, the do-it-yourself booking segment has rapidly become a major component of the travel industry. According to data from Susquehanna International cited by travel industry news site tnooz, global DIY bookings rose by 28% from 2014 to 2016, landing at roughly $88 billion. That was more than double the 12% rate of the traditional hotel segment.
Luckily for shareholders of sprawling online travel agency Expedia (NASDAQ:EXPE), their company bought into the segment by purchasing HomeAway in late 2015. This business has been a nice little motor of growth for its parent, and I think it's got a bright future ahead of it.
Expedia chose its acquisition target wisely -- HomeAway is a powerful player in the DIY segment.
Thanks to a series of acquisitions of its own, it offers more than 2 million rental opportunities in 190 countries. Unfortunately, that falls short of the company most closely associated with the activity -- privately held AirBnB, which says it lists over 3 million properties in roughly the same number of locales. Two million rentals, however, still form a wide and comprehensive catalog of accommodation.
Expedia knows a hot travel growth segment when it sees one. From 2014 to 2016, HomeAway's revenue grew by a robust 54% to just over $689 million. In its parent's most recently reported quarter, that top-line figure was $224 million, a 31% improvement over the same period the previous year. That rate was more than double that of Expedia's immense "core OTA" unit, which expanded at a 14% clip over the same stretch of time.
Due to the nature of its middle-man business, HomeAway's costs are not burdensome and it's reliably profitable. In fact, of Expedia's three non-core business divisions -- publicly traded but still majority-controlled Trivago (NASDAQ:TRVG), business travel specialist Egencia, and HomeAway -- the latter posts the highest operating margin in the portfolio. It also brings in the most revenue.
All in all for the quarter, Expedia's top line increased by 18%; without the Trivago/Egencia/HomeAway troika, that number would have been 14%.
The future looks good for HomeAway in particular. Susquehanna Capital is forecasting that the DIY segment's bookings will soon cross the $100 billion threshold to hit roughly $106 billion in 2018, representing a 20% increase from the 2016 tally. Although that growth isn't as hot as the 2014 to 2016 result, it still well outpaces the anticipated 13% rise of the traditional hotel segment.
A long stay
It's always encouraging when a company rides a swelling wave. Expedia didn't exactly get far ahead of the break with the HomeAway buy, and it paid dearly -- the company was over a decade old at the time of the purchase, and it changed hands for a cool $3.9 billion (by comparison, the price tag for the majority stake in Trivago was $632 million).
Regardless, HomeAway is a prize asset in the hot area of private accommodation, and it's a robust grower that is set to keep expanding.
For an OTA that's active in all of the important travel segments, it's the rising tide that can help lift the other boats -- customers booking private accommodation need to rent cars and buy tickets for attractions, after all. Expedia can easily provide these along with the digs. With HomeAway, the parent company certainly has a winner on its hands. Look for the unit to keep enhancing Expedia's overall performance.