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Could This SPAC Be a Big Reopening Winner?

By Matt Frankel – Aug 12, 2021 at 6:42AM

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As more people around the world start traveling again, here's a company that could be a big beneficiary.

Travel is already sharply higher than it was in 2020, but is still a long way from getting back to pre-pandemic levels. We recently learned that vacation rental management company Vacasa is planning to go public through a merger with blank-check company TPG Pace Solutions (TPGS). In this Fool Live video clip, recorded on Aug. 2, Fool.com contributor Matt Frankel, CFP, tells Industry Focus host Jason Moser why he's putting this SPAC on his radar. 

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Matt Frankel: Next one is Vacasa. I own a vacation home. I don't use Vacasa, but I have a lot of friends who do. They have nothing but good things to say about it. Vacasa is the largest full-service vacation rental management company in the U.S. They are a property management company. They don't do long-term rentals, they just do vacation rentals. They're emerging with a spec called TPG Pace Solutions, ticker symbol is TPGS. Valuation of $4.5 billion. In the vacation rental world, Airbnb (ABNB -0.14%) has a valuation of about $80-$90 billion depending on when you're looking at it. Pretty small company. They're getting almost half a billion of cash in the deal. They manage 30,000 vacation homes mostly in the U.S. They have a very small presence in Belize and Costa Rica. Most of their operations are domestic. I mentioned that they're the biggest vacation rental management company. Check out how fragmented this market is, 30,000 homes is less than a one percent market share of the vacation homes. That's the biggest company.

Jason Moser: Wow.

Frankel: That's a big opportunity to grow and expand and really dominate the space. They have some strong revenue. They generated $757 million in revenue last year on $1.6 billion worth of gross bookings. Vacation rental management, if you're not familiar, has pretty high margins. If I hire a property manager to manage my long-term rentals, the standard split is 90-10. I get 90% of the rent, my manager gets 10%. With vacation rentals, the industry standard is about a 60-40 split, so the manager gets 40%. There's a lot more work to do with a vacation rental. They have to clean after every person, they have to manage bookings instead of just signing one lease with a tenant. There's a lot more to do. Great gross profit margins. They don't expect to break even for at least 2023. But unlike Nextdoor, they actually mentioned a break even point. Nextdoor said, "We're going to be losing money for the foreseeable future." They didn't even try to make an effort that they were going to be profitable. Interesting business. I like the 60-40 split that they're getting, that's a pretty nice gross profit margin. We'll see how much they can translate that into actual profits down the road.

Moser: Well, if we don't see an advertisement for a Vacasa with the tag line, and I'm going to go ahead and give them this one, Matt, "Mi casa, su casa, Vacasa." I mean, that writes itself. You're welcome guys. You want to get to profitability, boom, there you go.

Frankel: It does, and I'm going to send the clip of you saying that to them, and we'll see what happens with that.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

TPG Pace Solutions Corp. Stock Quote
TPG Pace Solutions Corp.
TPGS
Airbnb Stock Quote
Airbnb
ABNB
$94.70 (-0.14%) $0.13

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