HomeAway reported its Q4 2013 and FY 2013 numbers earlier today and stomped its way past estimates to outperform on multiple metrics. But has it done enough to justify a premium valuation over Priceline, Expedia and TripAdvisor at a P/S multiple of 11.4? We analyze its financials, key metrics, future guidance and valuations to understand what it means to an investor.
Financial Performance & Key Business Metrics
HomeAway’s (NASDAQ:AWAY) earnings release came out with revenue growth quashing both its own guidance, as well as analyst estimates. The company closed FY 2013 with a total revenue of $346 million and marginal slippages in operating and net margins. It clocked a YoY revenue growth of 23.6% for FY 2013, a slight improvement over the same measure in the previous year.
For the quarter in Q4 2013, it posted a revenue of $90.3 million with an operating income of $4.4 million and Net income of $ -1.6 million. HomeAway managed a YoY revenue growth of 26.2%, its best quarterly growth in the last two financial years. The average YoY revenue growth rate in FY 2013 saw a 150 basis points improvement over that of 2012. Also, the company had reported negative quarterly sequential revenue growth in Q4 2011 as well as Q4 2012. It managed to break this jinx albeit with a tiny 0.2% sequential growth increase.
Q4 2013 marked the company’s first negative net income in the last 8 quarters with both operating and net margins dipping by 5.5% and 8.1% respectively over Q4 2012. However, that is probably not something investors should fret about too much given that an increased spending was outlined for this quarter, as we had also pointed out in our earnings preview. The fact that this is an outcome of choice rather than lack of control should provide some consolation.
With the company focusing very heavily on developing its revenue model and rolling out new platforms thus laying out the infrastructure for a potentially higher growth phase, it’s not likely that their margins will swell in a hurry.
|2012 Q4||2013 Q3||2013 Q4||FY 2012||FY 2013|
Revenue in $ Millions
As a percentage of revenue, the quarter saw a marginal increase in cost of revenue and product development costs by about 1% with general and administrative costs jumping by 6.6%.
HomeAway’s revenue mix showed stronger growth in its bread and butter segment, ‘listing revenue’ up from 84% of revenue in Q3 to 87% translating to $ 78.4 million. The company’s paid listings grew by 15% from Q3 to reach 890,000.
Adjusted for the listings added by its December acquisition of Stayz, the listings would be 850,000 representing a 10% sequential growth and an adjusted growth of 30% YoY from its FY 2012 year end tally of 711,631 listings. The average revenue per listing increased to $377 from $349 a year ago and $372 at the end of Q3 2013. The renewal rate for listing subscriptions at 72.5% grew marginally on a sequential basis and contracted marginally over the renewal rate in Q4 2012.
Since the company’s launch of bundled listing subscription, if a property owner lists his property on 2 sites, it is still counted as 1 new listing, thus prompting the company to release adjusted YoY listing growth rates.
In line with our expectations Homeaway exited this quarter with another acquisition, purchasing Stayz, an Australian company that manages 4 vacation rental sites, reiterating its focus on the APAC region. The all-cash transaction of $197 million gave HomeAway about 40,000 additional listings.
HomeAway’s guidance for Q1 2014 expects revenue to be in the range of $102 - $103.3 million representing a sequential growth of 13.1% - 14.4% and a YoY growth of 28.5% - 30%. If it does manage to achieve these growth rates, it will have achieved its best QoQ growth in nearly 3 years and its best YoY growth in 2 years.
The company expects to earn a revenue in the range of $429 - $436 million translating to a growth of 23.8% - 25.8%, its highest annual growth in the last 3 years.
HomeAway Company Valuation
With gaining momentum in revenue growth, all of its new initiatives including its acquisitions and a host of developments that are likely to improve its revenue mix and usability for a larger mass of customers, HomeAway provides all the necessary elements for optimism. If things pan out the way the company is planning them, it could take them to the next level.
In the quarter in question, the company has definitely outdone itself. However, that in itself is not enough in a competitive environment where the strongest competitor comes with revenues almost 20 times your size and still grows faster, with far higher margins and exceptional consistency on all counts. Additionally, if all of that is available at valuations that are much more attractive, it gets increasingly difficult to justify such a premium.
|Valuation (2013 Q4)||Priceline||Expedia||TripAdvisor||HomeAway|
|LTM Sales (in million $)||6,752.15||4,771.25||944.69||346.52|
|Market Cap (in million $)*||65,510||10,330||14,610||3,960|
* As on Feb 19, 2014
Note: Pricline values are estimates.
As things stand, though we think HomeAway has potential, its plans are just about unfolding making it a fair bit riskier than some of its peers. It isn't prohibitively expensive going by either a P/S or P/E multiple. Nevertheless, we think some of its competitors like Priceline offer better value. That said, we will be watching the company and sharing the excitement about its future because it could eventually develop into something very nice.
To see HomeAway’s latest stock price movement, click here (NASDAQ:AWAY)