HomeAway Reports Strong Q3 Earnings

HomeAway, Inc. (AWAY) reported adjusted third-quarter 2013 earnings of 12 cents per share, exceeding the Zacks Consensus Estimate of 10 cents. The adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Investors responded to the reported numbers, sending shares up 13.1% in after-hours trading.

Revenues

HomeAway reported revenues of $90.1 million in the third quarter, up 4.0% sequentially, 23.3% from the year-ago period and above management’s expected range of $88.6 million–$89.6 million. On an FX neutral basis, revenues increased 22.0% from the year-ago quarter. The increase was due to strong performance in both listing and other revenues.

Revenues by Sources

Listing businessgenerated 84.0% of third-quarter revenues, down from 85.0% in the second quarter.

The segment increased 3.0% sequentially and 23.0% year over year, benefiting from higher average revenue per listing as well as increase in the number of paid listings. Paid listings increased 7.4% from the year-ago quarter to 773,752. Also, average revenue per listing increased 15.7% year over year to $390 driven by base price increases made for certain brands as well as the impact of tiered pricing and geographic bundles.

Other generated 16.0% of sales, up from 15.0% in the prior quarter. It comprises of ancillary revenues from owners and travelers, advertising, software and other items.

Segment revenues were up 9.8% sequentially and 24.8% year over year driven by the introduction and enhanced distribution of value-added owner, manager and traveler products.

Operating Results

Reported gross margin for the quarter was 85.2%, up 120 basis points (bps) sequentially and 70 bps from the year-ago quarter, driven by higher revenues and a favorable mix.

HomeAway reported GAAP operating expenses of $64.0 million, up 24.6% from $51.4 million incurred in the year-ago quarter. As a percentage of sales, both product development and sales & marketing costs decreased from the year-ago quarter, while general & administrative expenses increased. The net result was a GAAP operating margin of 14.2%, down 10 bps year over year from 14.3%.

Net Income

On a GAAP basis, HomeAway recorded a net income of $8.5 million or 10 cents per share compared to $5.2 million or 6 cents per share in the year-ago quarter.

On a non-GAAP basis, HomeAway generated adjusted net profit of $10.2 million compared with $7.3 million in the last quarter. Pro-forma earnings per share came in at 12 cents compared with 9 cents in the last quarter.

Balance Sheet & Cash Flow

HomeAway exited the third quarter with cash, cash equivalents and short-term investments of approximately $352.4 million versus $336.3 million in the prior quarter. Trade receivables were $17.4 million, down from $18.5 million in the prior quarter.

Cash flow from operations was $18.7 million versus $21.8 million in the prior quarter. Capex was $3.7 million versus $5.5 million in the prior quarter. Free Cash flow was $17.0 million versus $19.2 million in the prior quarter

Guidance

For the fourth quarter of 2013, HomeAway expects total revenue in the range of $85.5 million to $86.5 million, up 4.6% sequentially at the mid-point. Adjusted EBITDA is expected in the range of $22.6 million to $23.1 million.

For 2013, total revenue is expected in the range of $341.7 million–$342.7 million and adjusted EBITDA within $98.3 million–$98.8 million.

Our Take

HomeAway, the world's leading online travel leader, reported a strong third quarter, driven by improvement in the overall online travel booking industry.

The company provided an encouraging fourth-quarter guidance, indicating signs of an improving vacation rental industry. Management believes that tiered pricing and network bundles will continue to contribute to pricing expansion. Additionally, HomeAway’s initial rollout of e-Commerce and new pay-per-booking platform will likely accelerate listings growth in the upcoming quarter.

We believe that the company is making every effort to drive growth in its organic business. Last month, the company signed an agreement with Expedia.com (EXPE) with an intention to expand online travel accommodation options by featuring HomeAway vacation rental properties on Expedia. Also, HomeAway is making investments in international markets because of the higher growth potential in these markets.

However, growth in these markets comes at a cost. The Asia/Pacific region, for instance, is likely to remain one of the strongest drivers of the company’s business over the next few quarters, particularly since online penetration in many Asia/Pacific markets is relatively low. The company has responded by making strategic acquisition, such as the acquisition of the Asian vacation rental start-up, travelmob, in July. However, profitability depends on very high volumes, since the region typically yields lower ADRs.

Though the company will continue to face challenges from players like Priceline.com (PCLN), Tripadvisor Inc. (TRIP), Expedia, as well as a growing number of other local players, it is well positioned for long-term growth.

Currently, HomeAway has a Zacks Rank #3 (Hold).

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