Will Priceline Acquire HomeAway?

The online travel industry was in the news lately when travel giant Expedia announced the $1.6 billion acquisition of Orbitz Worldwide. Many believe that this is just one of the many acquisitions to happen in the industry. Vacation house rental firm HomeAway (Nasdaq: AWAY) is one such potential target that is expected to be bought. For now, though, the company has managed to stay independent. But, given their financial performance, I wonder for how long they will be able to sustain themselves.

HomeAway’s Financials

HomeAway’s first quarter revenues grew 13% over the year to $119 million, falling short of the Street’s estimates of $119.8 million. They ended the quarter with a net loss of $0.02 per share. On an adjusted basis, earnings of $0.11 per share were also short of the Street’s forecast of $0.13 per share.

During the quarter, listing revenues grew 9% to $95 million and other revenues, which include ancillary revenue from owners, managers, and travelers, advertising, software, and other items grew 31% to $24.1 million.

Among operating metrics, they ended the quarter with paid listings growing 14% to 1,086,000 of which 724,000 were subscription listings and the balance were performance-based listings. Average revenue per subscription listing during the first quarter grew 16% to $472 on a constant currency basis. Renewal rate reported a marginal drop from 73% last year to 72%. Overall visits to their site grew 17% to 287 million.

HomeAway forecast revenues for the current quarter at $122 million-$124 million and for the year at $493 million-$500 million. HomeAway has revised their forecast downward from revenue estimates of $510 million-$520 million for the year. HomeAway attributed the slowdown in their revenues partly to the weakness in the European markets.

HomeAway’s Growing Offerings

Last month, HomeAway tied up with HotSpot Tax to offer a HotSpot Tax Center to help their vacation house owners access to easier tax compliance. The HotSpot Tax Center is a free online resource available to vacation rental owners to help them understand and comply with the tax and licensing requirements for their property. The vacation owners can use the automated HotSpot solution to manage tax filings for state and local short-term rentals. The tool will help them determine taxes owed from each rental transaction, number of tax returns to file annually, minimum number of nights their property must book to be deemed taxable, and provide other information about the license and registration requirements.

As part of their expanding inventory, HomeAway recently also announced the purchase of a minority stake in CanadaStays. CanadaStays is Canada’s largest vacation rental website with an inventory of over 50,000 whole-home properties in Canada. HomeAway, on the other hand, has a comparatively modest inventory of less than 10,000 properties in the country. The investment will help HomeAway expand their presence in the market as visitors to the HomeAway website will be able to access CanadaStays’ inventory as well.

HomeAway’s stock hasn’t been doing too well. In February this year, it touched a 52-week low of $25.13. It has recovered since and is trading at $28.51 with a market capitalization of $2.7 billion. But it is still significantly short of last July’s high of $36.90. Their stock price still makes them a pricey acquisition target, but players like Priceline could be interested as it continues to build inventory and compete with Expedia.