Austin, Texas based HomeAway, a vacation home rental service, has raised a $250 million round of financing. This comes on top of $209 million previously raised over two rounds.
The new financing was led by Technology Crossover Ventures, with existing investors IVP and Redpoint Ventures participating as well. The financing is the largest minority investment of a U.S. Internet company in the last eight years, according to Venture Source.
The pre-money valuation was around $1.15 billion, say a couple of sources, and at least $50 million of the round went off the table to earlier investors. The company was founded in 2005 and has grown primarily through acquisitions: They’ve acquired at least eleven vacation home rental sites, including VRBO, VacationRentals.com, Abritel.fr and OwnersDirect.co.uk.
The company has revenues of around $150 million and $50 million in ebitda. In addition to cashing out some of the investors, our guess is that the additional funding will likely be used for further acquisitions.
It’s also clear that the round was seriously overvalued. Ebay was rumored to have mulled over an acquisition earlier this year at $1.5 billion, but it never came through with a firm offer. It’s not clear who else could be a buyer at this valuation. Also, since HomeAway has acquired just about everyone in the market, there’s little room for additional growth via acquisitions. 20x ebitda is a public company valuation for a company with real growth potential. Our guess is these new investors may take a bath.
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Not sure why this is absurd. They have revenue >$150M. That’s a real business.
Alex - TC is not used to covering real businesses.
Yeah - TC would rather cover REAL business models like Twitter and FriendFeed. Those guys make a TON OF CASH!!!
Right, because I’m sure TC has better insight than the likes of powerhous VC’s like RedPoint and Austin Ventures. Bloggers OPINIONS (can’t stress that enough) need be taken with more than just a grain of salt. For example, TC hyped and presumed a Y! - Microsoft acquisition and it actually spiked the stock!! Unbelievable.
It’s obvious that these kinds of numbers will be hard to realize, but it’s difficult to speculate without reviewing their business plan or talking to their management team. Maybe they have a strategy that’s not obvious at first look. I get this feeling a lot when I read your blogs…some companies are clearly headed for the dead pool and investors everywhere are taking a bath, but great companies always blindside you.
Anyway, I don’t know these dudes so whatever
P.s. Can I nominate myself as 4th founder of this company if they do hit it big?
Well, at an EBITDA of $50M that would be a net discount rate of 5%…that implies either significant growth or much higher stabilized margins. Or the ability to pick up significant growth at discount prices (which Michael does not think is available). The value of any company should be the present value of its future cash flows…the key is earnings and cash flow, not revenue.
@Marc
good analysis. But, before having great margins you need revenue. Your scaring me because your answer sounds like typical MBA.
Waitaminute. $150M revenue, but only $50M ebitda? It costs them $100M a year to run that site? I can’t believe that - do they have a real sales force, customer service, etc? I don’t see many signs of that.
I would have to assume that number has a number of one-time acquisition costs bundled into it, right? Otherwise, how the heck are they blowing $100M a year on what is a fairly unsophisticated business (from both a technology and marketing perspective).
Oh looks like Michael Arrington woke up on the wrong side of the funding bed this morning. How is this an ‘absurd’ valuation? The value of something is what 2 people agree on. Surely that’s the line you give your investors when they wake up and realize that they’ve invested in a glorified news bulletin board?
>The value of something is what 2 people agree on.
So two people agreed a home was worth 600k in 2005 that is now in foreclosure and would bring 300k if lucky, and yet in your world the buyer had not bought off on an ‘absurd valuation’?
it’s a real business. the only way for somebody to penetrate it now is to make specialized local versions and then tie it together at some point in the future.
Your right. This kind of knocks the wind out of any competitors - but there is always a way to do it better.
What many people here (including MA) are not realizing - this is a HUGE and growing opportunity. Many second home owners are feeling the squeeze on that vacation home mortgage and there are something like 19 million vacation home owners who do not rent out their second homes….yet. It is a huge growth market and the economic slow down helps the situation.
There are some problems - many local governments are making it harder to turn your vacation home into a “short-term” vacation rental (thanks to the hospitality lobby) - but this market continues to grow. Congratulations to the team!
I don’t think that TCV, IVP and Redpoint are likely to be putting money into something they don’t think they can make a good return on. Without all the facts it’s hard to make a conclusion. More interesting would be to consider how large this market is/may be in time to see how large this company can get. If they can be a $500M revenue firm in a few years then the valuation doesn’t look bad at all. In any case speculation and opinion isn’t very helpful.
my guess is they’re looking at this more like debt than equity. Viva la liquidation preference!
My take was some of the original investors are pumping still more money in fearing it may go under if they do not, and hence it may be good money after bad.
While this company may have a valid business, in looking at the site and the amount of money put in it really does smell like a late 90’s dot com scenario all over.
But again, it may make it, as I thought Priceline.com would be a casualty and it is still around.
really big money huh.
That’s a serious warchest in a down market. They will be able to do a pretty comprehensive roll-up of accretive sites.
Agreed. Not too mention vacation rentals present a great value vs. hotels. Also good for a down market.
A crazy valulation, I can’t see the ROI coming back anytime soon.
Crazy valuation. Very risky!
Btw
Check out http://www.jobstaxi/com
New Jobs. Garage Games. Infinity Ward. Funny Or Die. KickApps. Gracenote.
Well, if the investors got preferred shares, then at least they won’t lose money. The investors should have known that eBay valuations are always over the top.
Wow!!
Pretty confident… Hope they don’t get burned
Best,
Mike
http://www.wannadevelop.com/
I agree with Brendon that the ebitda is quite low (probably due to the acquisitions), BUT the business of vacation/holiday home rental has a lot of potential since the existing companies that aggregate holiday homes offer very basic services but they charge up to 30% (of rental income) to the home owner.
In Denmark you have companies such as http://www.sologstrand.com which advertise the holiday home (in brochures and on the internet), they have offices where you pick up the keys to the home, they organize cleaning between each occupancy and help solve any problems that may occur during the holiday stay. The level of service is very basic with a lot of scope for value add.
If HomeAway can compile a common set of (high standard) services for its portfolio of holiday homes it can lift itself well beyond the localized (country) based competition and use scale to effect the margin.
The owners of these holiday homes do not want to think about the servicing side of the operation, they want to see high occupancy rates and maximum rental returns.
I also agree with Mahalo that localizing the service is key since you need to market to niche groups in different countries. In Denmark (for example) you need to appeal to Germans as they love to visit Denmark in the summer and stay in Danish holiday homes (hence the need to advertise in Germany - in German).
The acquisition of Owners direct was a good move and the marketing of holiday homes for Golfers on that site is a clever angle aimed at that niche, but there are many other niches to aim at (equestrian, sailing, surfing, hunting………).
Anyways my vote is that the holiday rental market still has huge potential and aggregation of good quality properties along with excellent customer service and high quality servicing of the homes is the key.
Also think about the fact that local amenities and services can be tied into each holiday home property. I have not yet seen a holiday home company that will show me a google map where I,
BTW I am in the holiday home market in Denmark and know the market very well, the sales figures for holiday home rental are not dropping, in fact they are increasing since families are opting to stay local or not travel by air to other countries.
Without looking into their business model I can only assume that their ambition is to make and lead the market. It seems obvious that they go for a buy and build strategy, which explains their need for cash and in turn the valuation. Maybe the home rental market is a billion dollar opportunity? On the other hand there is a lot of stupid money around. As always it is a bet, a bigger one this time.
I agree with Brendon that the ebitda is quite low (probably due to the acquisitions), BUT the business of vacation/holiday home rental has a lot of potential since the existing companies that aggregate holiday homes offer very basic services but they charge up to 30% (of rental income) to the home owner.
In Denmark you have companies such as http://www.sologstrand.com which advertise the holiday home (in brochures and on the internet), they have offices where you pick up the keys to the home, they organize cleaning between each occupancy and help solve any problems that may occur during the holiday stay. The level of service is very basic with a lot of scope for value add.
If HomeAway can compile a common set of (high standard) services for its portfolio of holiday homes it can lift itself well beyond the localized (country) based competition and use scale to effect the margin.
The owners of these holiday homes do not want to think about the servicing side of the operation, they want to see high occupancy rates and maximum rental returns.
I also agree with Mahalo that localizing the service is key since you need to market to niche groups in different countries. In Denmark (for example) you need to appeal to Germans as they love to visit Denmark in the summer and stay in Danish holiday homes (hence the need to advertise in Germany - in German).
The acquisition of Owners direct was a good move and the marketing of holiday homes for Golfers on that site is a clever angle aimed at that niche, but there are many other niches to aim at (equestrian, sailing, surfing, hunting………).
Anyways my vote is that the holiday rental market still has huge potential and aggregation of good quality properties along with excellent customer service and high quality servicing of the homes is the key.
Also think about the fact that local amenities/facilities can be linked to each holiday home property. I have not yet seen a holiday home company that will show me a google map view of the holiday home and show me local amenities/facilities. This model can expand to being a directory enquiries model for which the start point is the location of the holiday home thus an opportunity for local advertising or commission sales).
BTW I am in the holiday home market in Denmark and know the market fairly well, the sales figures for holiday home rental are not dropping, in fact they are increasing since families are opting to stay in country or not travel by air to other countries.
PS If you want to rent a 5 bedroom Danish farm with Indoor swimming pool, Jacuzzi, Sauna, home cinema and stables for horses pm me :0)
I use this companies site to rent out some vacation properties. I’m familiar with their site structure, fees, etc. I believe online vacation rental sites are a solid business model but I can’t figure out why they would require so much cash. Maybe they’re paying an absurd amount for these acquisitions. The sites essentaillay run themselves as far as I can tell.
im willing to be that in return for the big price those investors own a security that will virtually guarantee they make a decent (1.5x?) return…investors get STRUCTURE when they pay ABSURD prices. at least thats what the good ones do.
It’s a great business to be in, glad our niche is getting more attention
oh by the way, feel free to view our luxury villa rental website http://www.luxuryretreats.com
Luxury is the next move. Of course, within the luxury niche, the competition gets a bit more convoluted as it rubs against the destination clubs, residence clubs and hotel villas.
A few players in the luxury space including Luxury Retreats, Homes Away, and Villas of Distinction. A new player has entered that is qualifying each property. Check out http://TheSociety.com for qualified, hand selected rentals.
I’ll have to check out the site. I know some people who use craigs list but you can never know. If they do a background check then I would be more willing to trade houses with someone or rent their vacation house.
It’s simply impossible to make that amount of cash from that market. Investors must’ve been really tricked into this…. they have acquired every major site except http://www.rentalo.com . I still believe in high value rogues that can give us an alternative.
I’ve been curious why Home Away has not purchased http://rentalo.com. According to compete they are near 150-200K visitors a month. I guess in the scheme of driving 4M uniques/month through their other sites it’s significant enough. However, they seem to have some depth in hotels and b&bs. More to come I’m sure.
Really an interesting way to grow a business.. just buy everybody else out there!
I’m a customer of VRBO and also have 3 houses managed by property managers. What property managers don’t get is that consumers are hungry for a deal and are willing to take some risks if they can save money by cutting out the middle man.
On a related note, we are launching a marketplace for last minute vacation rentals in Dec. http://www.NextWeekVacations.com (site not really up yet
helps homeowners fill their last minute vacancies and provides consumers with huge savings. Priceline meets VRBO.
Maybe I should rethink my valuation
Absolutely agree that many clients looking for vacation homes are looking for a deal and will take additional risks. The recent PhoCusWright research report indicated that consumer satisfaction was the same for RBO vs. Property Managers. I think there are a few factors to those findings:
1) Consumers have already compromised their expectations when they rent a home (aka accepted the risk). They don’t expect hotel services so when a RBO or PM does not deliver hotel-like services they are not disappointed.
2) RBOs are doing a better job than most people (property managers in particular) give them credit.
3) Property managers are not fully marketing their services or delivering enough value to justify an additional expense.
All that being said, the vacation rental market is quite vast in terms of product. It ranges from the 2 bedroom shag carpet condos to 8 bedroom estates so expectations and experiences vary. I should note that I founded a company that specializes in the upper tier properties.
They have dominated in the US market but are light in other markets such as the UK, IE, AU etc. There are many possible aquisition targets in these markets such as the holiday home rental group which has 25,000 properties in the uk alone: http://www.holidayhomerental.co.uk plus serveral thousand in ireland http://www.holidayhomerental.ie etc. Will be interesting to see where they go with it.
Well they probably aren’t hiring salespeople:
http://www.homeaway.com/travel/site/ha/careers
So it’s probably going towards International expansion as Andy said.
Or maybe they need the cash to buy Skype away from eBay
Have 2 properties listed on all Homeaway sites. Hope they spend some of that $250 million to hire more bodies and improve their tech and sales support. You add a new photo to the site and it takes DAYS for them to “approve” it, if at all! Same with email tech support questions. Tech and sales support is M-F, 8-5 CST only! The internet vacation business is 24/7 and they should at least expand their customer support hours. They have also added ads to the site that compete with your listing and crowd the listing page. They also need to invest more in “branding” the Homeaway,Cyberrentals,A1Vacations and Greatrentals name. It’s very regional in the US-recognized more in the Midwest and less known in the Southeast.
TechCrunch buttheads would rather bend over and take it up their asses to companies like Facebook with its $15B valuation selling bullshit virtual items and crap ads that people never click on. Because that’s where REAL value in the world is created.
you’ll never understand. social media is the next combustible engine
It’s important to note that the HomeAway network of sites are paid listings for existing vacation rentals. They don’t, nor could they possibly offer property management services for their customers… too many geographic locations.
VRBO, the cash cow of the company, is in desperate need of a makeover. It’s a terrible website and fails to ’sell’ properties properly. Such an undertaking would involve a massive investment, but I doubt this round of financing will address it.
The problem with HomeAway and the plethera of other listing sites that seem to pop up like gofer holes is that they all tend to have the same listings. Either sharing listings or stealing (scraping) from other vacation rental sites (true managed rentals). Where’s the value there, either from an investor’s or customer’s prospective?
Having watched this space for the last 6 years, it seems every dot-com’er who rented a vacation home believes they have the next big idea to take on the vacation rental market. They don’t, hence the absurd number of listing sites out there. HomeAway does have an advantage, mostly through acquisition, but they’ll need to use their cash to increase their distribution via marketing partnerships with media outlets (like their USAToday partnership) and OTAs (Expedia, Travelocity, etc.).
Interesting. No question that people use internet to research vacation homes. I imagine other entrepreneurs will be interested in the intersection of real estate and technology now that we are in the trough of the market. If you need an investment grade real estate business plan written, check out todd smith of bluehorizonvc.com
This round smells to me like MONEY LAUNDERING - someone might have access to get some dough from illegal casinos in Eastern Europe which then can be liquidated through a ‘losing’ business….
By the way - 90% of the comments are trying to SEO their own sites - moderation please?
So how is it going to take for me to rent a private island in the Carribean? … wwwthevisionboardkit.com
Got to agree with Arrington - paying over 20x earnings for a private company is insane, unless their numbers are going to be spectacular in years to come. Look for cheaper valuations and market leadership - Google, Apple, and RIM, for instance.
Michael, thanks for the article, i much appreciate the tip. But with all due respect, I had a good chuckle at this statement:
“…since HomeAway has acquired just about everyone in the market…”
Their 11 site acquisition isn’t even a snowflake on the tip of an iceberg. Next to porn, vacation rentals has to be the most saturated industry online. I often joke that there’s more vacation rental websites than vacation rentals.
We started an index of vacation rental websites but gave up, because its far too vast… oh, and even vast.com is a vacation rental website now. Here is the list we started:
http://www.free-rentals.com/li.....sites.html
Here is a list of 250 more vacation rental websites for sale:
http://www.free-rentals.com/pa.....r-sale.php
What about those owners who are now lost in the hundreds of thousands of listings? Unless they are savvy enough to create a USP that wrestles the rental population away from the competition, they are likely to wallow in the vast pool of similar properties. There’s a lot more to the vacation rental market than Home Away.
For owner resources, articles and advice: http://www.cottageblogger.com
Consider the huge effort of online travel agencies to negotiate 30% margins with preferred suppliers (eg. hotel groups) who have increasingly strong direct online market access. Exp valued at 2.38bn…and they face increasing struggles to maintain margins.
HomeAway has almost unlimited growth potential, and no possible push back from individual home owners on the margins, and the ability to continue acquisitions and avoid competition.
Look at where this business can be in 10 years. A very large opportunity.
VRBO is terribly designed and practically non-functional. Hard to believe that could be the core of any company. My mother-in-law has(d) several listings on VRBO but of course those home were in Galveston Texas! This additional investment appears to be as bad as hers!
HomeAway (formerly WVR Group) funded their acquisitions through cash (& stock) payments to the previous owners of the websites they acquired. They also paid some staff with stock in lieu of salary. A chunk of the ‘new’ money might account for this as they will perhaps want to now buy back the stock & continue acquiring more of the ‘bigger’ players in this market in readiness for floatation in 2010.
The team behind HomeAway are Venture Capitalists with the pedigree of Austin Ventures behind them so don’t be surprised by anything they do…
http://www.HolidayRentals.com
In my opinion Homeaway does not offer enough for the $300 price tag per ad. I recently discovered a vacation rental advertising site that actually addresses some of the management needs that vacation rental owners have. If you don’t own a vacation rental than you would not know that the management is very intensive and I used to find myself drowning in paperwork. Rental Space Network- http://rentalspacenetwork.com has solved this problem and I believe they are well positioned to be a big player in this industry because they have done something different than the rest of the advertising sites out there. This site allows owners to create legal lease agreements to be filled out and signed online by their guests using electronic signatures, completely eliminating paperwork and the two weeks it sometimes takes to get a signed agreement back. This site also helps you to manage your Craigslist ads by implementing an autopost feature where you can quickly post your ads from their site. We all know that Craigslist gets the most visits of any vacation rental site, but it is tough to manage your ads and the ads are not that detailed, this site solves both of those problems.
http://www.holiday-rentals.co.uk/ launched a new website a little while ago and maybe this is a sign of things to come from them? Seems to me that they’ve been slow to get the purchased sites redesigned and play on their powerful brand.
With the competitive search market I definitely feel it is better to go local. This also gives you the opportunity to provide a much better service to your guests and owners/agents.
Not so easy to expand, but does it always have to be about international dominance? I would rather be extremely good in a few specific areas than average worldwide.
This plan is working well for us so far.
what happened to American Capital’s equity stake? they didn’t just put in debt (which the PR said will be “eliminated”)
Thanks for the article it helps in my research to decide whether or not to join and rent out my lake cabin this summer. The biggest benefit is that homeaway does offer a wide selection of rentals, with a proven track record. However I am cautious about the cost of the listing/membership and trying to decipher exactly what that includes.
I am a vacation rental property lister on one of Homeaway’s sites. Since HA’s acquisition of so many sites one wonders what value it has. In the past a lister took a gamble on which site would bring in more traffic and placed his bet [advert] Now with HA running all the horses in town they are trying to con listers on one HA site to list on another of HA’s sites -no discount mind you- One pitch on a HA site claims they have spent millions on keyword research. Just that claim alone should be a tip off that they haven’t. I took the keywords on 5 HA controlled sites on pages pertaining to my market and ran them in Google. A lot of the keywords were real junk/generic to start with. The ‘good’ ones didn’t place always that well in the Top 10 on Google - but my little site always came up (I ran the test in reverse and my site, #1 in my market, didn’t do all that well on my own keywords - but what the heck their kw’s were generating my site and I got a better crack at their potential clients. Plus HA property owners on one site are now getting a lot of spam from HA’s other sites - and one site [maybe all of them as they are increasingly looking and operating the same] is promoting some destinations over others which clearly is a disservice to all other listers -sure in time they’ll claim to promote all areas but don’t hold your breath. Skimming the comments above and seeing its a VC driven game I hope they fail – they’re trying to force a change in the market and I think their biz plan may be making some false assumptions - I’ve been in this business 10 years+ and for 20 previous was in travel and air carrier sales - I think I can beat them in this game for not all that much investment - create a superior site that values its property listers rather than exploits and extorts them. Create a site also giving honest and excellent back-up service to the clients passing through the portal *- then HA will have real competition and a choice - I’ve been po’d about this for about a year and thanks to this article and forum I think I’ve picked up the buzz for my next project - interested investors can e-mail me. HA is headed into wobbly ground with the worldwide economic downturn. My enquiries on my own proprietary site are down 30% year-over-year [but actual business isn't] for the last three months as I’m sure everyone else’s are. HA isn’t doing jack to help its prop-listers - it keeps raising prices and is now looking to take a cut by offering to establish a booking agent service [thanks - I have done quite well on my own without having 10-15% or more peeled of the top - listings should be free if they want to do that - that's how I ran another successful site in my niche market before I sold it a year ago] Well I’m rambling I know - but excited as I see an opportunity to topple this goliath WOW now if I can get their 150,000 subscribers at say 35% less than they charge maybe I can get out of my personal recession
*I’m guessing that one of HA’s thrusts [based on a recent survey they sent to owners] is to give a TRUST Assurance Guarantee to renters -really there has not been much complaint in this area so what HA is doing is casting a cloud over the property owners who by and large are 100% honest? Its fingering its income base - we’ll its time for that base to REVOLT.
Pierre writes in Nov last year….>>no possible push back from individual home owners on the margins<<
I add so far…
Brendon writes last year >>Waitaminute. $150M revenue, but only $50M ebitda? It costs them $100M a year to run that site?<< So if Homeaway claim 150,000 listings overall that’s $1000 overhead per listing right? and they only charge from$179 to $300 year per listing? Big money leaves me perplexed at times
A bold move by HomeAway, hopefully it will pay off for them. I agree that their main cash cow, vrbo, needs a complete rehaul. I find it impossible searching among all of their listings. I list on both of these sites but have received just as many inquiries from my listings o FindYourVacationHome.com. All listings are completely free there - a good recession-buster!