Trivago IPO Gets the Attention But HomeAway Could Be a Bigger Expedia Profit Generator

Nearly $1 billion in guest-booking fees could super-charge HomeAway’s top and bottom lines for parent Expedia Inc. by 2018.

With that in mind, while much investor and travel industry attention focuses on Expedia’s expected initial public offering of German metasearch site Trivago, which has been on a growth tear, it is Expedia’s 2015 acquisition of HomeAway for $3.9 billion that could be the real sleeper in terms of providing the most-impactful upside.

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That’s the view of investment bank PiperJaffray, which points to the guest fee on vacation rentals that HomeAway imposed for the first time earlier this year as a major development when it comes to boosting Expedia’s profits.

“While the planned Trivago IPO is a positive … we continue to believe that HomeAway’s guest booking fee will drive the bulk of value creation and potential EBITDA (earnings before interest, tax, depreciation and amortization) upside,” PiperJaffray research analysts Michael Olseon and Samuel Kemp wrote in a research note September 20.

Nearly $1 Billion in Guest-Fee Revenue in 2018

Crunching the numbers, while Expedia’s guidance posits that HomeAway will achieve $350 million in EBITDA by 2018, PiperJaffray evidently feels that estimate is conservative and forecasts that it could actually come in at from $450 million to more than $600 million.

Using the lower $450 million figure, PiperJaffray’s estimate has HomeAway’s adjusted EBITDA leaping 204 percent in 2018 when measured against an estimated $149 million in 2016.

In fact, PiperJaffray estimates that HomeAway in 2018 will generate $985 million in guest booking-fee revenue — up from zero in 2015 when there was no such fee.

The guest fee is controversial, with some HomeAway vacation rental hosts saying it has hurt business. The expected complications of implementing the fee was one of the reasons HomeAway in 2015 saw an acquisition by Expedia as an attractive option.

For a two-night stay in a Chicago vacation rental at a rate of $1,000 in late September, HomeAway was charging a guest fee of $86.80, or 8.68 percent.

Just as Booking.com, which doesn’t charge guests a fee on vacation rentals, does now, HomeAway was leaving that money on the table until early in 2016 when it began leveling a fee on guests.

The Much-Awaited Trivago IPO

Expedia announced in July that it had reached an agreement with its majority-owned Trivago unit to take it public, and PiperJaffray believes that it would only be the shares in Trivago that Expedia doesn’tt own that would be offered to the public. Expedia has a 63 percent stake in the hotel-search company.

Expedia hasn’t filed an IPO registration statement yet for Trivago but has been lining up bankers. Depending on market conditions, a Trivago IPO could take place in the first half of 2017 although the initial goal was to get it done in 2016.

PiperJaffray estimates that Trivago’s adjusted EBITDA will grow 142 percent to $155 million by 2018 when compared with an estimated $64 million in 2016.

Trivago should attract a $6.4 billion valuation for its IPO, according to PiperJaffray. That compares to a current $8.5 billion market cap for TripAdvisor, which Expedia spun off in 2011.

But when it comes to gauging the upside for Expedia from its HomeAway and Trivago units, vacation-rental seller HomeAway should be the clear winner, at least short-term, according to PiperJaffray.

And beyond HomeAway’s guest fee, the integration of HomeAway’s vacation rentals with hotels on Expedia.com and sister brand Hotels.com, coupled with an Expedia push to onboard apartment rentals in urban markets, should position Expedia well on a longer-term basis for the alternative lodging revolution and ramped up competition with Airbnb and others.