And so the buying spree continues: hungry online travel agency Expedia (NASDAQ:EXPE) has again opened its wallet to acquire a big asset. Earlier this month it announced it reached a deal to purchase alternative accommodation provider HomeAway (UNKNOWN:AWAY.DL).
It's the latest in a string of pricey buys for Expedia, which so far this year has snapped up such goodies as Orbitz Worldwide and Travelocity. Let's take a glance at this latest big purchase from the company, put it in a broader context, and see if it makes sense for its business.
A new home
HomeAway sure looks expensive on the surface. Expedia has agreed to pay roughly $3.9 billion in cash and stock for the company, split into $10.15 in the former and just over 0.2 of a share of the latter for each share of its asset-to-be.
This boils down to $38.31 per share of HomeAway stock, a premium of around 20% on the closing share price the day before the deal was announced.
On a comparative basis, that amount doesn't look all that steep next to the valuation of the other big player in the rent-your-home-to-tourists space, AirBnB. Following its latest financing round, it seems the company is worth over $25 billion.
A big part of that valuation is the list of homes on its site. According to the company, it offers space in more than 2 million of them.
That $25 billion is more than six times what Expedia's laying out to buy HomeAway, which currently lists around half as many homes (1.2 million or so). Although the two companies aren't entirely comparable (AirBnB users tend to rent space in their main residence, while HomeAway stock generally consists of second homes), the DIY lodging concept is the same.
Both companies have been on a high revenue growth trajectory. HomeAway has managed to nearly double annual top line since 2011, to almost $447 million last year.
Net profit, though, hasn't followed the same path. It's been erratically up and down since the company's 2011 IPO; in 2014, it fell by 24% on a year-over-year basis to land at $13.4 million. So perhaps a well capitalized owner with wide-ranging experience in travel is exactly what HomeAway needs to improve that line item, and grow it more consistently.
Speaking of growth, Expedia has largely chosen to achieve this by, yes, going the acquisition route. In some ways, it doesn't really have a choice -- it's currently engaged in an arms race with its arch-rival, Priceline Group (NASDAQ:BKNG).
The two companies comprise a duopoly sitting atop the online travel space. They've gotten there through numerous acquisitions, and they just keep buying assets. Priceline has gone nearly toe-to-toe with Expedia; so far this year, it's obtained rewards purveyor Rocketmiles, hotel data and analytics solution PriceMatch, among other investments.
So at least part of Expedia's motivation for the HomeAway buy probably has to do with outpacing Priceline. It's not easy -- or cheap -- to maintain a market-dominating position.
But fear not, investors. Expedia can afford it.
The cash component of the HomeAway buy amounts to a total just shy of $1 billion. This is two-thirds of the $1.5 billion in cash and short-term investments the company held at the end of September. That means it won't need to take on debt to fund the purchase.
So, all in all, I'd say HomeAway is a good deal for the company, at one stroke making it a major player in a hot segment of the travel market, and for a cash outlay that won't shatter the finances.
But it'll likely continue the asset-buying face off between Expedia and Priceline. The balance sheets of both companies are in decent shape at the moment; they could start to buckle, though, if the two insist on extending their respective shopping trips.