Interview: HomeAway CEO on Whether His Company Is Next Acquisition Target

The consolidation flurry in online travel is accelerating as Expedia Inc. announced its intent to acquire Orbitz Worldwide, after nabbing Wotif and Travelocity in the last few months and Trivago a couple of years ago.

The Priceline Group now counts Kayak and OpenTable in the fold, and TripAdvisor picked up Viator and a series of European restaurant reservations sites since the middle of 2014.

There’s been much speculation that there aren’t too many big companies left to acquire and that HomeAway would make a nice addition for one or more of the big acquisitive companies, especially Expedia Inc., which has a new vacation rental partnership with HomeAway, or the Priceline Group, which is strong in vacation rentals in Europe.

Skift discussed the issue and related ones with HomeAway CEO Brian Sharples, who co-founded the company 10 years ago.

An edited version of the interview follows:

Skift: It would seem to me that with all of the consolidation going on in the online travel world that it would put HomeAway even more in play than it already was. What do you think of that theory?

Brian Sharples: Boy, I mean yeah. I guess I can’t necessarily disagree with that, Dennis. We’re clearly the leader in a very attractive segment of accommodations. And, as you know, any public company can be bought if the premium’s right and the price is right. But the fact that we remain an independent public company I guess tells you that nobody’s done that yet.

And I don’t know if it makes it more attractive or not. It’s one less asset that those guys can buy. My sense of things is that you really do have a race for global travel dominance between three U.S. companies and you know the three [Expedia Inc., the Priceline Group and TripAdvisor.] They’ve been doing that with a combination of organic growth and consolidation. Our stock’s been up and down this year but if you just look at HomeAway from a multiple perspective, we’re the highest-valued company from multiple perspective in travel. So, it’s not necessarily a cheap company.

A lot of companies, when dealing with a new market, may want to test and try and see what they can do on their own or do with a partnership before they’re willing to take a bigger leap in that. So, we’re having fun watching everybody try and we’ll see what happens from there.

Skift: We’re speaking on the afternoon of February 12 and Expedia announced this morning that it is acquiring Orbitz Worldwide for $1.6 billion. What does this mean for you guys?

Sharples: I don’t know. I mean I guess around here it’s a bit of a non-event because we’re not in the online travel agency world but I think if anything we see it as a positive because right now our primary OTA distribution partner that we’re working withis Expedia and so we’re super-pleased that they have Travelocity. If everything works out with them that’s yet another platform and now that they have Orbitz that would be yet another platform. So I think as long as things go well with our partnership, and we’re both working hard to make sure they do, then that probably just means there’s a bigger opportunity without us having to go out and sell somebody else.

Skift: So has it already pretty much been decided that your vacation rentals will appear on Travelocity.com and Orbitz.com too?

Sharples: Well, I haven’t talked to Expedia today. I mean, they just announced they bought the acquisition this morning.

Skift: No, well what about Travelocity, for example?

Sharples: But of course the assumption … I mean they [Expedia] are essentially running the Travelocity platform so if all works out well at Expedia I think everyone’s expectations is they would expand that to Travelocity. And my guess is if you look at the playbook they ran on Travelocity I can’t imagine they would do it a whole lot different with Orbitz, maybe.

Skift: I wanted to ask you about Expedia. I listened to their earnings call last week and the tone of it, to me that was that Expedia has so much on its hands right now and that vacation rentals will take a back seat. They acquired Travelocity, Wotif in Australia and now Orbitz. Did it hit you the same way and what do you make of that?

Sharples: Oh, I don’t know. We talked to them directly so it doesn’t really matter to me what they say in the forums. I think it’s clearly evident to everybody, based on today, that they do have some very big fish that they’re frying in their business with those other acquisitions that you mentioned. Vacation rentals is still a very small part of the overall picture for them, for Booking.com, for TripAdvisor, which now breaks it out as a segment so you can start looking at what those numbers look like. Obviously, I don’t think it surprises anybody that any of those companies wouldn’t say that they’ve got their attention squarely focused on their core businesses, as they should be.

I would answer that question the same way if you asked me about the bed and breakfast business. We own the number one bed and breakfast business in the United States but we obviously spend a disproportionate amount of time on the other stuff. We release earnings in a couple weeks. There are a lot of people who pay attention to this language around Expedia and so when we’re in a quiet period there’s not much I can really tell you right now to make you feel one way or the other, other than to say Expedia is putting in exactly the effort we’ve expected. It’s been very consistent. We got a great partnership with them. They’re doing all the right things.

Skift: TripAdvisor seemed to put a lot of emphasis on vacation rentals yesterday in their earnings call. They said they have 650,000 now and they’re in an investment phase in vacation rentals, restaurants and attractions; that this seems to be a big push. I remember the last time I talked to you. You said you hadn’t really felt TripAdvisor’s impact in the vacation rental market. Does the same hold true now?

Sharples: It absolutely holds true. We haven’t felt the impact to the extent TripAdvisor has inventory. It’s inventory that a lot of people have… For years we’ve been saying to people that their [vacation rental] business just isn’t that significant for them. They’re not a significant competitor; they don’t have a big chunk of the market. Don’t look at listing count numbers because that has nothing to do with whether it’s profitable or whether they’re driving high revenue growth. And so my guess is one of the reasons there’s a now a bit of a focus on it in the [TripAdvisor earnings] call is because they’re now in a position to break out this “other” segment, a part of which is vacation rentals… From a business perspective right now we’re certainly not losing any suppliers to TripAdvisor and our owners are doing great on our platform. So, I don’t feel like we’re losing customers to them, either.

Skift: Sure. I had a chance to interview Darren Huston of Priceline in November and I asked him what did he think of HomeAway? And he said the Priceline Group is in constant discussions with HomeAway and that he has a lot of respect for you. But in order to work closer together, he was saying that they were holding up a high bar and that your vacation rental properties would have to be instantly bookable. How are those constant discussions going and what are the possibilities of working more closely with Booking.com?

Sharples: Well, I mean first of all, Dennis, it’s a small industry. It’s just a handful of $1 billion-plus market cap companies out there so we’re all in constant discussions. We all know each other very well, whether it’s Dara [Khosrowshahi] at Expedia or Steve [Kaufer] over at TripAdvisor or Darren [Huston] at Priceline. So, we have this really interesting industry that has a lot of co-opetition, if you will. I used to be on the board of Kayak They got acquired by Priceline. So, we all know each other. I like Darren a lot; I respect him quite a bit. I know a lot of folks on their team and vice versa. I would say I get together with him as much as I get together with the other guys and we talk about the industry and opportunities.

And of course the vacation rental category, which everybody is interested in. I mean to date those guys [Booking.com] have chosen to do it on their own, which is fine. I think they would love to distribute some of our inventory, especially the rent-by-owner stuff because they have a very hard time getting at that. But we’ve taken the position here that if you’re setting up your company to compete with us on the supply side, at least for now, we don’t feel that comfortable doing a distribution partnership. So, Expedia was a case where they’re not really in the business to compete with us so they make a pretty good partner. TripAdvisor’s the same way. I think both TripAdvisor and Booking.com are very aggressively going after mostly property manager supply.

It’s possible maybe we carve out something down the road that is a partnership for non-property manager supply or something like that. There’s no question that Darren loves the business of vacation rentals. He sees the potential in it; the company sees the potential. They [Booking.com] clearly want to get in it and are going after it. We’re the leader in this space so there’s lots of people who certainly speculate that there should be something happening there. But I think what he told you is true.

Based on what I know about Booking.com, their name and platform, it is what it says it is, which is they really want to be the number one booking platform for accommodations. So, their interest is in the bookable stuff; not in the subscription stuff. Our industry has been built on a very different model than the hotel model. It’s evolving and it’s changing and it’s going to change but at least for the time being the majority of our revenue doesn’t function the way Booking’s revenue functions. I think what he told you is true; they do have a high bar at Booking.com for how a transaction goes down and they really want to be in the transaction business.

Our belief at HomeAway is there’s a time and a place for that; there’s a market for that; there are segments for that but right now the biggest segment of vacation homeowners have a very strong preference to pay us a subscription. And so we’re keeping that business alive because people are real happy with it and we make a lot of money doing it.

Skift: HomeAway’s 10th anniversary is this month?

Sharples: We had it on February 2. It is a pretty big deal for us. Not just because it’s 10 years but just coincidentally because a lot has changed in 10 years and it’s a pivot point for us. We had spent a lot of time as as management team starting, probably in September, in anticipation of the 10-year anniversary. Reflecting on the last 10 years and patting ourselves on the back and saying, “Hey, we had a pretty good run.”

We actually pulled out the original slide deck, which [co-founder] Carl Shepherd and I presented to the venture capitalists, that I have in front of me for a different reason and we and more or less executed against that plan fully. But now we’re 10 years down the road, things are different.

We’ve opened people’s eyes up to a very big, attractive market. We’ve got the young upstarts in Airbnb who are creating a ton of buzz and press, obviously. And then we’ve got the big, older firms who are all looking our way. We’ve turned our attention to the next 10 years and what’s strategically sensible and winnable and where we want to go because we’re a growth company and we want to keep growing. The one thing we do know is we sit in a pretty big industry where there’s probably 10 million homes out there and we have 1.5. million of them. So, we’ve got a long way to go.