The stocks of most major hotel chains were good investments in 2013, increasing by an average of 27% through the year. Hilton's record-breaking IPO further exposed investors' confidence in the sector and in its ability to develop into the future.
However, there is increasing competition. The strongest growth in the travel sector is not found among hotel chains--it is found online. Here is a look at one of the fastest-growing web-based aspects of the travel sector.
Online bookings of residential properties have increased and are taking the travel sector by storm. Such bookings may include properties rented by owner or via a vacation-rental management company, VRMC. Regardless, this specialty industry now represents 24% of all online bookings, double 2007's levels.
In 2008, fewer than one in every two VRMCs offered properties via a web-based interface. At the close of 2012, that number jumped to seven out of 10. As more and more VRMCs list properties online, and individual vacation homeowners see the benefits of listing their properties, this specialized industry will grow.
Market research company PhoCusWright estimates online vacation rentals will make up 30% of the U.S. travel market by year-end -- a sharper growth rate than previously experienced.
Start-up turned leader
One company that will lead this growth is HomeAway (UNKNOWN:AWAY.DL), an industry leader in matching homeowners with vacationers. It experienced an increase in stock price of nearly 80% in 2013. Since 2010, third-quarter total revenue, and revenue from rentals, has risen year over year. From 2012-2013, total revenue rose 23%; a 108% increase from 2010.
An excellent opportunity to join this travel revolution may be on the horizon. HomeAway registered for a secondary public offering with the intent of using "proceeds...for...purposes, which may include acquisitions...of, or investment in, products, services, technologies or other businesses."
While current shareholder's could see a secondary offering as a dilution of earnings, HomeAway's history should stave off a huge drop in share price. Since its inception, HomeAway has developed an aggressive history of turning new capital into earnings through frequent and expensive acquisitions.
HomeAway is not the only company in the vacation-rental business, nor is it the only acquisition-hungry company. Priceline.com (NASDAQ:BKNG) filed Form 8-K with the SEC late last year, informing investors of a material event surrounding its subsidiary Booking.com.
The event is that vacation rentals now make up 22% of Booking.com's inventory. As implied by the language in Priceline's statement, and its analysis of how vacation rentals may influence its finances, this percentage will only rise.
Priceline now offers vacation rentals through its portfolio of sites; but it also sells hotels, airfare, and rental cars. Priceline operates with a one-stop shopping strategy.
A Booking.com official indicated the company's "goal is to be the place...where travelers can find the right place to stay at whatever budget...no matter where they...wish to travel." Also mentioned was that current vacation rental listings on the site are only offered in strategically determined locations -- where demand for vacation rentals was seen. These rentals, unlike HomeAway.com, are only supplied by VRMCs, not individual owners.
HomeAway, on the other hand, focuses solely on vacation rentals. Vacation rentals pose unique challenges by having fewer available rooms per property than hotels and usually lower rates. However, HomeAway has found it profitable to offer its users a massive property database that it continually expands by acquiring similar start-ups all over the globe.
When it comes down to the numbers, HomeAway dot-com offers 570,000 vacation rentals. When considering the entire portfolio of HomeAway-operated websites, that number jumps to more than 773,000 rentals throughout 171 countries. Booking.com offers slightly less than 90,000 vacation rental properties.
HomeAway's acquisition strategy is designed to expand its online offerings and make it a more specialized online travel agency. Priceline's acquisition strategy is designed to expand its online offerings and make it a more diverse company that can meet the needs of any traveler.
Whichever the method, both companies have demonstrated a willingness to do what it takes to stay ahead of the competition -- to stay ahead of each other -- and to be leaders on the growing online sales front.
Continuing into the future
Watch for HomeAway's secondary public offering and to see which region of the world it adds to its vacation-rental database through acquisitions.
Watch for Priceline to continue to identify markets where there is a demand for vacation rentals. Also, look for Priceline to show an interest in purchasing HomeAway itself as a means of expanding its offerings. Priceline is not a stranger to acquisitions; Booking.com itself joined the Priceline portfolio in 2005 through an acquisition.