Vacation rental giant HomeAway has been sending its executive team around the US this month to talk to rooms full of investors, to get the word out about its stock.
This week, chief executive Brian Sharples and chief financial officer Lynn Atchison spoke at conferences organized by investment banks Raymond James and Morgan Stanley. More talks at Piper Jaffray and Deutsche Bank are due next week.
We listened in, so you don’t have to. Here are the trade industry highlights about the Texas-based company:
Getting more instantly bookable listings
Conversion on HomeAway relative to monthly unique visitors is in the 2% to 3% range, lower than what some analysts assume.
Sharples hopes to get to 100% of inventory being online bookable by the end of 2016. Today it’s at 36% of inventory, up from only 6% online bookable in the third quarter of 2013.
It will soon enable customers who want to use online booking to opt for offline payment, such as a check-in-the-mail or via PayPal — a move first pioneered by European apartment site 9Flats. Says Sharples:
“It’s kind of analogous to what Booking.com does. When you make a reservation on Booking.com, you don’t pay for the hotel then. You pay it on check-in or check-out.”
Homeowner supplier acquisition
HomeAway has built its business primarily on a subscription model. Property owners pay a fixed fee in advance, generally for a year, to advertise on the platform, regardless of how many bookings the owner collects.
HomeAway has claimed a high return-on-investment per customer, of about 30 times for every dollar spent by homeowners to post listings.
Yet as it increases its pricing and pushes out performance-based listings, the company will see downward pressure on that number.
There are suppliers out there in the industry willing to accept a return-on-investment as low as 7 times every dollar they spend to market their listings.
The company’s “take rate” is currently 4%, which it claims is the lowest in the industry.
It’s been trying to get the take rate up, as well as boost its average revenue per subscription at a high rate, by creating new upsell opportunities, such as a fee for being featured on websites in foreign markets.
The executives say this can also happen via subscription tiers, up-selling customers on the opportunity to have their listings appear higher in search result rankings — where the return on investment can be as high as 50 times.
He says when they raised the price on platinum, or the option for premier positioning in the search rankings, from $999 to $1,249, it saw no degradation on renewal rates.
The tiered pricing is still being rolled out globally.
Improving quality of listings
Not all homeowners offer a seamless experience to guests, and HomeAway is looking for ways to promote the ones who do the best.
In the past year, it began updating its algorithm to push up higher in search results properties that have up-to-date inventory calendars, have solicited the most reviews, are accepting of electronic payments, and are consistently responding to inquiries within 24 hours.
Sharples says listing quality scores have been risen about 12 points, on average, on a 100-point scale, in about a year.
HomeAway’s Atchison said that about 12% of its listings overlap with rival platform Airbnb’s listings. But she said she still saw the two companies as building different types of businesses.
“When we survey our owners, they say they get more bookings from us than from FlipKey or Airbnb. But there is no doubt that there is overlap among all of them…. We need to do a better job of differentiating ourselves against them.”
For traditional vacation rentals, HomeAway’s brands rank one, two, and three, followed by TripAdvisor’s FlipKey. Sharples believes a greater volume of bookings is flowing through its sites on an aggregate and on a per-listing basis than through FlipKey.
Airbnb’s success has inspired HomeAway to bring onto its platforms types of properties it hadn’t focused on before, such as timeshares, apartment condos, and investment properties being rented short-term. Says Atchison:
“We haven’t historically gone after them, but they represent an opportunity for us.”
HomeAway has surveyed consumers about their awareness of holiday homes as an alternative to hotels. In the US, 32% of consumers know about vacation rentals without being prompted. In Europe’s five largest countries, the un-aided awareness ranges from 53% to 68%.
Outside of those markets, only Australia and New Zealand have more established markets. Concludes Sharples:
“We’re far below our potential in the US in top-of-mind awareness about staying in a house on vacation.”
The company is launching an integrated brand marketing campaign. The company hopes that will boost brand affinity and brand loyalty.
The campaign costs money. The company will spend more on advertising, beyond the approximately 25% of revenue that it spent on marketing last year.
HomeAway claims it doesn’t face much margin pressure around the cost of spending money on marketing to drive traffic to its platforms.
While Sharples wouldn’t reveal exact figures, he says it’s not “radically off” to say that only 9% of its traffic is driven from search engine marketing.
About a third is direct-to-website, or organic. The rest is mostly free or non-marketed, such as through search engine optimization, or re-marketing to existing customers through email.
Europe versus America
When HomeAway launched a pay-per-booking service in Europe, it saw “enormous pent up demand,” especially from large property managers who control thousands of units.
The new pay-per-booking model made it easier for those property managers– causing a ballooning of supply.
The largest property managers in Europe had already been relying predominantly on third-party distribution on a commission or pay-per-booking model at rates of about 15%. So it was easy for them to sign up once HomeAway offered the same tool.
In the US, the story is different. As a rule, American property managers still haven’t signed on to third-party distribution. So they’re typically buying individual subscriptions.
Overall, property managers now contribute more than 40% of the inventory on the site.
Still, the company is agnostic on pay-per-booking and is not trying to make that a standard model, says Atchison.
Atchison says the company expects it will continue to growth through acquisition. That said, she adds:
“Private company valuations are quite high right now. So we’re disciplined about acquisitions. We’re mainly looking at geographic expansion.”