Airbnb (ABNB +0.73%) lists millions of vacation properties, long-term rentals, and adjacent experiences and services on its platform, and has become such a massive business that it has a $70 billion market cap even after this year's market plunge. Most investors can only wish they could have gotten in on such a disruptive industry leader early.
Unfortunately, of course, nobody has a crystal ball that can predict "the next big thing" with accuracy. But sometimes, you can spot companies that show the signs.
Vacasa (VCSA +0.00%), for example, looks as though it has Airbnb-like potential to dominate its part of the travel business, but it's still in a much earlier stage of growth. Here's a rundown of Vacasa's business, its growth opportunity, and what investors should keep in mind before considering opening a position in it.
Vacasa's market opportunity
Vacasa is a vacation rental management platform. The company provides full-service property management, including bookings, cleanings, maintenance, and more. It leverages technology to make the management process as efficient as possible, as well as to maximize yield for the owners of its managed properties. In fact, Vacasa claims that its typical vacation homeowner can make 20% more by renting on its platform than through other professional property managers.
NASDAQ: VCSA
Key Data Points
As of the latest information, there were more than 35,000 homes in Vacasa's universe. It also has some adjacent businesses such as a real estate agent network to help people who want to buy vacation homes to rent out.
Obviously, a catalog of 35,000 vacation rental properties doesn't compare to the millions of listings on Airbnb's platform. But that's kind of the point. Vacasa is already the leader in full-service property management, but manages far less than 1% of the properties in its addressable market. There are about 20 million vacation homes worldwide and over 5 million in the United States alone. There simply is no national brand in vacation rental management, and that's what Vacasa is aiming to create.
There's a massive opportunity. It is estimated that more than $200 billion will be spent on vacation rentals in 2022, and Vacasa had 0.8% of this volume in 2021. Plus, vacation rentals are growing twice as fast as traditional (hotel) accommodations.
Strong results and financial flexibility
Despite a general slowdown in consumer spending recently, travel demand has remained quite strong. In the second quarter, Vacasa's booking volume grew by 32% year over year, and revenue exceeded the high end of management's guidance. The company is on track to increase the number of homes it has under management by 30% in 2022.
It's also worth noting that, unlike many other high-growth companies (especially those that came public in the SPAC boom), Vacasa isn't far from profitability. In fact, it's expected to be close to breakeven on an adjusted EBITDA basis for 2022, and earned positive net income in the second quarter. So, while Vacasa received a ton of cash as part of its SPAC deal and still has over $319 million in the bank, it isn't burning through its reserves.
Could Vacasa have more revenue potential than Airbnb?
I alluded to this earlier, but I want to emphasize one key difference between Vacasa and Airbnb. Vacasa is a full-service property manager while Airbnb is mainly a booking portal. As a result, Vacasa gets paid far more for its services. Vacation rental management fees typically range from 25% to 50% of the rent. Airbnb only gets about 3% of its booking volume. The point is that Vacasa doesn't need to scale to the size of Airbnb to generate as much revenue -- it could do that with roughly one-tenth of Airbnb's booking volume. This is certainly an ambitious target, but not an unattainable one.
Finally, it's also important to mention that Vacasa isn't necessarily a competitor to Airbnb. Quite the opposite, actually. Vacasa markets its properties on Airbnb (in addition to other sites). In a nutshell, Airbnb wants Vacasa to succeed and bring more properties onto its platform. Vacasa's growth is a win-win for both companies.
Could Vacasa be the next big travel stock?
To be sure, Vacasa isn't without risk. There's a lot that will need to go right for it to make the leap from less than 1% of the market to becoming a true national (or even global) brand. It also is worth keeping in mind that travel is a cyclical business, and a recession or sharp slowdown in consumer spending on travel could derail Vacasa's growth momentum, at least temporarily.
Vacasa falls into the speculative category when it comes to travel stocks, as it's still in a relatively early growth stage. However, with a market cap of less than 2.5% of Airbnb's, and a capital-light, revenue-heavy business model, Vacasa certainly has lots of potential if it can execute on its vision.
