Today Expedia announced that it will acquire HomeAway for an estimated $3.9 billion in cash and Expedia common stock, representing a per share price for HomeAway shares of $38.31.

Simultaneously, HomeAway announced it will be adding a variable “traveler fee” adding approximately 6% for guests for all online transactions.

According to Expedia CEO Dara Khosrowshahi, “Our welcoming HomeAway is a winner in two ways. First, it brings industry leading vacation rental brands, traffic and unique inventory to the Expedia family. All of us have witnessed not only the incredible growth of the sharing economy, but also the substantial growth of alternative lodging in particular. Last year according to PhocusWright, one in four U.S. travelers went to private accommodations for their leisure travel. We’ve been very clear that the next chapter of our growth is supply bed, and we think HomeAway will accelerate that growth in the fastest growing segment we see out there.”

Khosrowshahi continued, “Second, HomeAway has been undertaking a challenging transition that Brian will talk about. That of a listing based model to an online transactional marketplace. The HomeAway team was working on this challenge on a stand-alone basis, but together we believe we can get there much faster and with greater certainty. As many of you know, we’ve been working with HomeAway for some time and very much respect their capabilities and -at the same time -are super excited about working together under a single corporate umbrella.”

Listen to the entire conference call. 

 

Brian Sharples added, “This will allow us to –one – aggressively accelerate demand growth for our suppliers, and –two – reinvest in products and services with a particular focus on making HomeAway the easiest to use and most trusted marketplace for vacation rentals in the word, all while accelerating revenue growth and margin expansion for the business. And the potential to do this is huge because our current take rate today is roughly 1/3 of that of our major competitors. So as a result, today HomeAway announced separately some important business model changes and though the specifics are still to be finalized, we do plan to introduce a traveler service fee in mid 2016 on transactions through our platform. Because we will begin rolling this out in Q2 and over the balance of the year, we characterize 2016 as the transition year with more notable impact in 2017 and beyond.”

Sharples continued, “In a transactional business, conversion is king, and optimizing conversion is a relatively new muscle for HomeAway, but an area where Expedia has tremendous capability. Given our industry leading booking volume even small changes in conversion should yield significant financial benefit.”

Read Dennis Schaal’s interview with Expedia and HomeAway CEO’s 

 

Key points from today’s Expedia/HomeAway call:

 

• The vacation rental category is the second largest category of lodging behind hotels with an estimated global market size of almost $100 billion.
• HomeAway will facilitate an estimated $14-16 billion in annual bookings in 2015.
• HomeAway currently has 1.2 million whole home rentals in 190 countries.
• HomeAway’s goal is to have all listings bookable online by the end of 2016.
• HomeAway will roll out its “traveler fee” in Q2 2016.
• HomeAway intends to increase its take rate from 3% to 8-10%.
• HomeAway is not eliminating its subscription model.
• The Expedia partnership is expected to increase demand for vacation rentals, increase inventory in urban markets and provide tools for optimized conversion on the sites.
• HomeAway will continue to run out of Austin as a stand-alone platform under the Expedia umbrella.

 

Vacation Rental Managers Weigh in on Impact of an Expedia-Owned HomeAway:

 

T.J. Clark –CEO, Turnkey Vacation Rentals (700 properties)

“The changes coming from HomeAway will benefit PMs and owners that are focused on conversion.  As Dara K said on the call, ‘Conversion is the machine that makes everything else go.’  Listing rankings based on your paid subscription tier will be replaced with ranking based on listings that perform the best in terms of conversion. It will favor those who are using technology and process to have the best performing listings in the HomeAway marketplace.  And of course while HomeAway is big, the future opportunity for homeowners will be even bigger given the Expedia visitors that will be directed to HomeAway or see their listings more prominently displayed on the Expedia family of sites like Hotels.com. Homestays will be going mainstream in the travel marketplace which is a huge opportunity for owners, yet will need a more competitive approach that ever to succeed.”

 

Steve Milo –Founder, Vacation Rental Pros (1,100 properties)

“The new marriage between HomeAway and Expedia will bring new opportunities and unexpected surprises for professional managers in the Vacation Rental industry,” “The opportunities include true global distribution of vacation rentals using the best practices of HomeAway with the worldwide distribution expertise of Expedia. The surprises could include higher costs to property managers in more competitive advertising areas, spin-offs or sales of certain assets, brands or divisions, and personnel changes.  But, considering the marriage has just consummated let’s hope that it is a win-win for Expedia, property managers and HomeAway employees.  This positions four powerful well-funded companies in the vacation rental space now with Expedia, TripAdvisor, Airbnb, and Priceline all attempting to compete for supply in the core vacation rental resort market.”

 

Scott Breon –CRO, Vacasa (2,500 properties)

“Expedia’s acquisition of HomeAway is fantastic news for the property management industry – it opens a tremendous channel and opportunity that would not be possible otherwise. It is a smart move on HomeAway’s part to push ad costs to the consumer, due to the unique management contract structure of the PM industry. Spreading the booking cost between PM and Renter will enable HA/Expedia to further invest in new initiatives and capabilities that are not possible at lower margins and lowers the barrier of entry for PMs. I expect over the next year that the combined entity will see leaps in growth of customer acquisition and conversion of those customers, which is a win for HA subscribers. The increased demand from the combined company will increase achievable nightly rates and utilization – especially in smaller markets that lack hotel inventory on the Expedia platform. Urban destinations, fly-to markets, and international traveler hotspots will also see wins as hotel booking platforms are the primary path for those customers. The PMs that will be negatively impacted over the next year are those that are not instantly bookable and those that drive their customer base through SEM.”

 

Ben Edwards –Manager, Newman-Dailey Resort Properties and President, Vacation Rental Managers Association (VRMA)

“I’m excited about the opportunity this holds for professional vacation rental managers as such a large international travel company becomes more invested in the vacation rental industry.”

 

Steve Trover, CEO, All Star Vacation Homes & CSO, LiveRez 

“Predictably various managers have come out in support and ever excited about the prospect of this acquisition. While we too feel the increase in exposure of our industry could be a positive we think the industry is forgetting what has happened thus far. For starters Expedia has had vacation rentals on their website for many years. They have tried to introduce VR to consumers in many ways and each has failed to do anything other than produce more cost for the manager and owner. There has been no significant demand creation.

“Secondly we are forgetting what happened to hotels. They were enticed by the apparent demand that the aggregate shopping experience provided only to find out that it did not increase demand but only served as a major toll booth between the hotel brands and their customers. Costs continued to escalate until some of the chains attempted to fight back and pull out only to find that they had no power despite having thousands of hotels, large marketing budgets and major brands attached to them. How can we look at this and think that our industry will see a different result? How does the individual manager think they can fight against the inevitable massive increase in cost that is coming?”

 

Julian Castelli, CEO, LeisureLink

“This both 1) demonstrates that this industry is important to the major travel players, and 2) is another piece of evidence that it is going to be a more mainstream option for travelers. I predict this will accelerate growth for the industry. I  also think this is going to be a big step in bringing the industry into the modern e-commerce era. HomeAway was moving in that direction, and I see Expedia’s capabilities in this area as a big driver for the deal. After all, if their platform is good enough to power Orbitz and Travelocity, why not HomeAway’s as well? While Property Managers often prefer the listing model, I think consumers definitely prefer the convenience of e-commerce. This combination will accelerate the industry’s move in this direction.

“As for channel management, if my second statement is correct, then the need for up to date rate, availability, specials and content is going to increase, and that will increase the demand for good channel management solutions in the vacation rental industry. LeisureLink has enjoyed long and strong partnerships with both HomeAway and Expedia, and we congratulate both of our partners on this historic deal. We look forward to working with both of them to grow the vacation rental industry and their offerings in the space.”

 

PM Questions About the Purchase

Questions circulating among vacation rental managers regarding the impact of Expedia’s purchase of HomeAway center around the following:

• Will Expedia retain or spin-off HomeAway’s software division?
• What will a “Traveler Fee” mean to bookings?
• Will our distribution costs go up?
• Will we stop getting data from inquiries?
• (For software clients) With access to our database, will Expedia market to our past guests?

 

By Amy Hinote