Airbnb’s Blockbuster IPO May Tempt Barry Diller to Spin Off Vrbo From Expedia

Online Travel This Week

Sitting on the sidelines, you can’t blame rival online travel executives for salivating about Airbnb’s current $107 billion valuation.

It could therefore be tempting for Expedia Group senior executive Barry Diller to spin off the company’s Vrbo vacation rental business to create additional shareholder value, as Wells Fargo analyst Brian Fitzgerald advocated last week.

After all, Diller has been an avid spinoff practitioner, having spun out Expedia from IAC in 2005, and likewise liberating Tripadvisor from Expedia’s clutches in a similar manner in 2011.

Expedia Group CEO Peter Kern told me a couple of times during interviews prior to the Airbnb IPO that he was keen to find out what Airbnb’s valuation might be. But an Expedia spokesman told me Monday that the company has no intention of letting go of Vrbo.

Fitzgerald’s theory is that the Airbnb IPO gave impetus to hefty valuations that Expedia could capitalize on if it spun out Vrbo. While Vrbo’s pre-Covid 2019 revenue was $1.3 billion — about one-third of Airbnb’s — it narrowed the gap in site traffic in 2020, had a banner year, and has an edge in exclusive listings, according to Fitzgerald.

In addition, he wrote, Vrbo has dominant market positions in certain destinations, including the Florida Gulf Coast and Keys, the mid-Atlantic Coast, the Carolinas and Hawaii in the United States.

Playing the back of the envelope math game, Barron’s Technology Editor Eric J. Savitz speculated that if one calculated Vrbo’s potential valuation as a standalone company at only half the sales multiple that Airbnb has, then Vrbo on its own would be worth around $14 billion compared with Expedia Group’s current $19.2 billion valuation with Vrbo in the fold.

But here are some of the issues for Expedia in a potential Vrbo spinoff:

• Expedia Group has been on an ardent campaign since Kern became CEO last year to simplify the overly complex company with its more than a dozen brands. Spinning off Vrbo would create an additional layer of complexity because Expedia would still need access to Vrbo’s vacation rental inventory to be a viable online travel agency. What’s hotter than short-term rentals these days?
• Most companies that execute spinoffs target non-core assets, but Vrbo’s business is core to Expedia.
• Many online travel agencies, including rival Booking.com, are trying to build their short-term rental businesses rather than relinquish them.
• Vrbo isn’t comparable to Airbnb: Vrbo is mainly U.S.-focused and has had trouble breaking through abroad; it only deals with whole homes, not apartments; its demographics skew older than Airbnb’s; and Vrbo doesn’t have Airbnb’s global brand recognition.
• Does Vrbo, which was a disappointment in many respects pre-pandemic, have the seasoned leadership to be a public company on its own?
• What would Expedia be worth without Vrbo? Would the parent company’s share price plunge or at least be volatile post-spinoff? Would the combined valuation of the two companies exceed Expedia’s current valuation?

It’s important to note that public company CEOs try to boost shareholder value even if a spinoff may seem contrarian strategically on its face. When Expedia spun off Tripadvisor in 2011, one might have asked why let go off all that travel content, a substantial advertising business, and one of the most popular travel companies traffic-wise on earth?

But in Expedia’s spinoff of Tripadvisor, Expedia shareholders, who received one share of Expedia and one share of Tripadvisor for every two Expedia shares they held, made a killing. Expedia’s valuation had been less than $4 billion at the time of the transaction in 2011, and the combined worth of the two companies was more than $18 billion two years later.

Dan Wasiolek, a Morningstar analyst, said it would be prudent for Expedia to spin out Vrbo given Airbnb’s “irrational valuation.” He thinks Expedia’s Egencia, business travel unit, might also be an attractive spin out with multiples of six or seven despite the challenges of business travel because Egencia appears to be gaining market share.

So it would be unwise to rule out a potential spinoff of Vrbo given today’s outsized valuations, but for now, at least, Expedia seems to be intent on hanging onto Vrbo as key to the next stage of Expedia Group’s evolution.

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