Homeaway Vieques Island Rental

One of HomeAway's highlighted vacation rentals on Vieques Island. Source: HomeAway's Facebook page.

Shares of HomeAway (NASDAQ:AWAY) stock entered the week down a bit more than 14% year to date. Will the slide continue, or are better days ahead? A lot depends on how well the business performs. Here's a closer look at what analysts expect to see when the vacation rentals specialist reports third-quarter earnings tomorrow night:

Q3 Estimates
Revenue
YOY Growth
EPS
YoY Growth

Low estimate

$113.47 million

25.9%

$0.14

(26.3%)

High estimate

$117.68 million

30.5%

$0.18

(5.3%)

S&P CAPITAL IQ CONSENSUS

$115.93 million

28.6%

$0.16

(15.8%)

Source: S&P Capital IQ.

A beat would be a real achievement. Only once in the past four quarters has HomeAway reported more profit than Wall Street was targeting:

Earnings History
Q3 2013
Q4 2013
Q1 2014
Q2 2014

Consensus

$0.16

 $0.14

$0.14

$0.15

Actual

$0.19

 $0.08

$0.14

$0.15

DIFFERENCE

$0.03

($0.06)

$0.00

$0.00

Source: S&P Capital IQ.

Looking at the overall business, I'm watching for momentum in each of these four areas:

1. Paid listings and visits. More than anything else, HomeAway is a marketplace. The company generates fees from landlords via paid listings -- or by taking a cut of rental proceeds -- and from renters by offering value-added services such as traveler's insurance. More listings means a bigger marketplace, and new opportunities to grow. But cashing in requires drawing visitors to HomeAway's various sites. In Q2, paid listings improved 34.2% year over year to 1,040,547. Site visits improved 14.2% to 229.5 million over the same period. Stable or accelerating growth in each metric would be a good sign.

2. Average spend. Much has been made of rival AirBnB achieving a $10 billion private money valuation. How is that impacting HomeAway? Are landlords using the upstart to extract better terms? Average revenue per subscription is one metric that helps answer this question. In Q2, HomeAway generated $473 per subscription listing -- up 11.5% after accounting for currency effects. Roughly 72% of the company's paid listings were from subscriptions in the second quarter. The remaining 28% are known as "performance-based" listings where HomeAway gets a cut of property rental fees.

3. Add-on services and premium contracts. Just over two years ago, HomeAway began adding invoice-based premium products to help protect landlords and travelers while boosting profits. The strategy has worked well so far: Gross margin improved 40 basis points to 84.2% in 2013 and is up another 60 basis points over the trailing 12 months. In Q2, revenue from these sorts of ancillary services increased 49.7%. At $19.7 million, this category accounts for just 17% of overall sales, leaving plenty of room for growth.

4. New methods of distribution and future deals. Less than a year after announcing plans to add 10,000 HomeAway listings to Expedia (NASDAQ:EXPE), the two companies are expanding their partnership to include 115,000 vacation rentals. In a September press release, the company described the expansion as part of a "pilot distribution strategy." What does that mean? Are there more partners to come, and what did the initial test accomplish for both HomeAway and Expedia? I'll be looking to the earnings call for details.

HomeAway reports Q3 results Tuesday after the market closes; check back here then for our take on the report. And in the meantime, leave a comment to let us know what you're expecting, and what you think of HomeAway stock at current prices.

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

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