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Is This the Rental That Dooms HomeAway?

By Rick Munarriz – Nov 20, 2013 at 4:32PM

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A rental gone bad through a rival service could damage the home-sharing model.

Asset sharing is a big business, and one of its champions has been HomeAway (AWAY.DL). The vacation rental exchange operator allows property owners to rent out their vacation homes when they're not using them. 

As you can probably imagine, rentals don't always go as planned. A property may not be as amazing or clean as advertised. A tenant could be messier than usual. However, then you get to the kind of asset-sharing nightmare that PandoDaily unearthed earlier this week on Airbnb. A D.C.-area woman rented out her apartment to what apparently turned out to be a pair of male prostitutes using her place to provide services during their eight-day stay. I'll leave out the saucier details, but let's just say that she ended up discovering what they were up to.

Airbnb did the right thing when it learned about the shenanigans. It booted out the renters, compensating the owner by paying the rent in full. It offered to pay for a cleaning service. However, clearly the owner is left scarred by all of this.

"I really don't think I'm going to use Airbnb ever again," she tells PandoDaily, and understandably so. 

Where does this leave HomeAway? Fans will argue that you can't compare the Craiglist-esque nature of Airbnb to the lavish properties available through HomeAway, but this is more about vetting the renter -- and that's something that Airbnb does a better job of than HomeAway or traditional lodging sites. If folks are traveling the country offering escort services on Airbnb, why couldn't they be doing the same thing through HomeAway?

This wouldn't be the first time that a bad rental on Airbnb leaves a mark on Homeaway. Shares of Homeaway plunged 12% two years ago in the days following an Airbnb rental where the property was ransacked by the renter. Anything that makes the home rental marketplace less savory or dangerous hurts HomeAway's ability to secure quality properties.

HomeAway is rolling these days. It posted blowout quarterly results earlier this month. Revenue and earnings climbed 23% and 36%, respectively. HomeAway also offered guidance that exceeded Wall Street expectations. 

There are now 773,000 paid listings on HomeAway. There always seems to be comfort in renting out second homes or investment properties when there's a professional manager there to coordinate bookings and schedule cleanings, but how comfortable will property owners be if their addresses are used by high-end traveling escorts to solicit local clients? After all, these may be secondary properties now, but a lot of these property owners also go back to these vacation homes for their own getaways, or plan to move in for keeps after retiring. You'd hate to have to answer your door to see a stranger based on a solicitation made years ago by a renter.

This may seem like an isolated story, but if it has legs, it could eat into HomeAway's supply of available properties as owners get cold feet about monetizing their properties to passing strangers.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends HomeAway. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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