HomeAway (NASDAQ:AWAY) reports its Q4 2013 earnings on the 19th of Feb 2014 surrounded by much anticipation going into this earnings season.
We look at its historical performance, business metrics, key developments and valuations to evaluate what the company looks like at it’s current stock price of $42.53 and P/E and P/S multiples of 300 and 11.4 respectively.
Historical Performance & Key Metrics
The chart below shows the revenue and profit trends for HomeAway from Q2 2011 to Q3 2013. Compared to its key financials in 2012, in the 3 quarters in FY 2013 so far, HomeAway has shown marginal improvement across the board. The company’s average YoY revenue growth in the period has been 22.7%. Average operating margins in the year so far have been very close to its average since the company’s listing, at about 11.4%.
While a study of HomeAway’s track record doesn’t make for much of an eye-popping experience, what the company does, is spare investors the rude shocks on earnings day. Far from stellar, but consistent nevertheless.
|Quarters||Q4 2011||Q1 2012||Q2 2012||Q3 2012||Q4 2012||Q1 2013||Q2 2013||Q3 2013|
|Net Sales or Revenues||58.46||64.10||71.62||73.13||71.56||79.46||86.61||90.15|
HomeAway has been making a concerted effort to develop its platform and create more options for customers with different requirements. This is reflected in the gradual increase in its product development spends, which are likely to continue through the product roll-outs it has planned over the next year.
HomeAway earns its revenue by listing vacation rental properties listed by property owners or property managers on its sites, via a subscription model. In Q3 2013, total paid listings grew to 773,000, at 13% YoY with its recent acquisition Travelmob, adding 1% of the growth, while renewals remained flat at 74%. Average revenue per listing grew to $372 at 10% YoY and the company’s global network of sites saw close to 200 Mn site visits, implying a traffic growth of 19% YoY.
At the end of Q3, the company’s focus was on improving monetization and providing more flexibility to its customers by letting them pick from a range of options that best suit their listing requirements. The company has been gradually transitioning its sites to a tiered/differential pricing model and selling listing subscriptions in bundles that enable subscribers to be listed on a more than one of HomeAway’s sites.
Taking it one step further from its existing form of a listing only site, HomeAway has begun its foray into online bookings and related payments with 82,000 of its listings being globally enabled for the same at the end of Q3. Further, the launch of its ‘Pay-Per-Booking’ (PPB) platform should also encourage its customers, both old and new, to take to the e-commerce enabled listings which make the whole process much easier for travellers in any case.
Additionally, its ‘partner referral network’ initiative will connect POs to PMs who have already listed a prerequisite number of properties on HomeAway’s sites with a prior agreement that PMs will list properties they have thus found.
Come 2014, investors will be keen to know the outcome of HomeAway’s distribution agreement with Expedia to display former’s vacation rental properties. Investors will be hoping that HomeAway’s top-tier / high end vacation rental site ‘Luxury Rentals’ provides much needed impetus to its not so attractive profit margins.
Estimates & Outlook
The company’s own revenue guidance for Q4 2013 is a YoY growth of 18.6% to 20% translating to a revenue of $ 84.87 – 85.87 million, taking the total revenue for FY 13 to $341 – 342 million.
Analysts’ consensus estimates peg revenue for Q4 at $ 87.5 million with an FY 2013 total of $343 million.
HomeAway has been doing a lot to expand and boost revenues, and having consistently beaten analysts’ estimates, we think there’s a good chance that they will do it again. However, the company has indicated that it will spend its savings in FY 2013 so far in its last quarter, and so, a little hiccup in the margins could be on the cards.
The company has been generating positive cash flows from its operations to end up with a cash pile exceeding its annual revenue. Given that their ambitious plans for the APAC region feature high on their priority list, it’s very likely that HomeAway will be on the lookout for more acquisition targets like Travelmob and Bookabach, both of which it acquired in Q3 2013.
The contributions from the PPB segment are not likely to be substantial in the first year or so, but these listings will earn the company 10% of the booking with none of it coming from the traveller.
While the company appears to be keen to retain all of its revenue streams, its prime concern will be if the new PPB segment starts to cannibalize its conventional revenue source, listing subscriptions, which provides the company with a relatively more stable income.
To sum up, a lot of things look great for the company and there are multiple reasons to be optimistic about it, but HomeAway’s stock price and its current P/E or P/S multiples isn't one of those multiple reasons.
|Quarter||Q4 2013 Est||Q4 2013||Q4 2013||Q4 2013 Est|
|LTM Revenue/Sales ($ million)||6752.15||4771.25||944.69||343.74|
|Market Cap ($ million)||66940||10120||14540||3920|
|price per share ($), as on Feb 19, 2014||1301.64||78.02||93.35||42.53|
|Adjusted Diluted EPS ($)||41.01||3.25||1.68||0.62|
Everything said and done, in spite of its size, when it comes to growth rates, it isn’t really giving a Priceline a run for its money. We will re-visit HomeAway’s valuations post its earnings release. But for now, it is too very expensive.
To see HomeAway’s latest stock price movement, click here (NASDAQ:AWAY)