Homeaway Vacation Rental Thailand

A luxury HomeAway vacation rental located in Thailand. Credit: HomeAway. 

Shares of HomeAway (NASDAQ:AWAY) were up over 7% shortly after market close this afternoon as investors cheered the company's better-than-expected Q2 results. Here's a closer look at the second-quarter totals versus Wall Street's projections:

AWAYRevenueYOY GrowthEPSYOY Growth
Consensus estimate  $123.93 million  8.5%  $0.11 (31.25%)
Q2 actual  $125.84 million  10.1%  $0.12   (25%)
DIFFERENCE  $1.91 million  1.6%  $0.01  6.25%

Sources: S&P Capital IQ and HomeAway press release. 

Commenting on the results, CEO Brian Sharples said in a press release: "We've had another great quarter, delivering strong results at or above our expectations. We are especially encouraged by the uptake of our online bookable listings, which grew to 50% of our inventory in the quarter and marks a significant milestone toward our 2016 goal to make nearly all of our listings online bookable."

What went right: HomeAway saw improvements in most of its core metrics. Before we get to those, let's address what Sharples means when he refers to "online bookable" listings. Early in its history, HomeAway was like a catalog. You'd look up a property, get some information, and book directly with the owner. "Online bookable" properties make the HomeAway experience like an enhanced booking engine: search, find, and book all in one place. The enhancements led listing revenue higher by 5.6% in Q2 before accounting for foreign currency impact. Revenue from add-ons such as travel insurance or booking software for owners jumped 31.9% and accounted for  21% of second-quarter revenue.

What went wrong: Growth came at a cost in at least one area. HomeAway said quarterly free cash flow dipped 3.6% year over year in Q2. Gross margin fell one percentage point over the same period, from 84.7% to 83.7%. The good news? Average revenue per subscription listing rose 15% year over year after accounting for currency impact. Total listings also improved, rising 13.9% to 1.185 million worldwide. Margins and cash flow could be taking a short-term hit as HomeAway makes investments to keep owners and vacationers coming back.

What's next: Looking ahead, HomeAway forecasts $128 to $131 million in third-quarter revenue, resulting in $36.5 million to $38 million in adjusted earnings before interest, taxes, depreciaition, and amortization.

Analysts tracked by S&P Capital IQ have the company generating $130.14 million in revenue and $0.05 a share in profit after accounting for stock-based compensation and other noncash items. That compares with $117.11 million and $0.05 a share in last year's Q3.

Longer term, analysts have HomeAway growing earnings by an average of 23.67% annually over the next three to five years. 

In the meantime, investors should pay close attention to total listings and average revenue per subscription listing. Continued gains in each should help HomeAway to eventually accelerate cash flow and generate meaningful returns for investors.

Tim Beyers plans on being home for a few months. He's also a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission but 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.

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