Expedia Inc. accelerated efforts to gain distribution share
in the private accommodations sector last week, when it agreed to acquire HomeAway
for $3.9 billion.
HomeAway’s brands include VRBO.com, VacationRentals.com and BedandBreakfast.com
in addition to its eponymous brand.
“We’ve had a chance to work with Expedia as a distribution
partner over the last two years and are very impressed with their technology
and travel booking expertise,” HomeAway CEO Brian Sharples said on a Nov. 4
conference call after the agreement was announced.
On the same call, Expedia CEO Dara Khosrowshahi said the
deal “brings industry-leading vacation rental brands, traffic and unique
inventory to the Expedia family.” He added that Expedia had taken note of the
“incredible growth of the sharing economy” and “alternative lodging, in
The agreement, slated to close by March, is Expedia’s most
ambitious effort to expand its reach beyond the conventional OTA market by
boosting its exposure to the rapidly growing home rental business represented
by companies such as HomeAway and Airbnb.
Sharples estimated that HomeAway could generate as much as
$16 billion in bookings this year. Through September, Expedia’s gross bookings
totaled almost $45 billion.
“Expedia should be able to add synergies pretty quickly as,
historically, HomeAway/VRBO has not fully capitalized on the online space,”
said Chris Anderson, associate professor at the Cornell School of Hotel
Administration. “Their online booking and availability capabilities have not
been as streamlined or consumer- and supplier-friendly as the Expedia
Douglas Quinby, vice president of research for Phocuswright,
also saw the deal being mutually beneficial.
“HomeAway needed more muscle to compete with [Priceline
Group division] Booking.com and Airbnb,” he said. “And Expedia needed a
strategy for private accommodation.”
The deal will be the largest recent acquisition by Expedia
and its primary competitor, Priceline. Expedia in September completed its $1.34
billion acquisition of Orbitz Worldwide after buying out Travelocity earlier
this year for $280 million.
Expedia also acquired Australian online travel company Wotif
Group for $612 million late last year, and in 2013 it paid about $630 million
for a majority stake in metasearch engine Trivago. Meanwhile, Priceline
acquired restaurant reservations operator OpenTable for $2.6 billion last year
and bought out metasearch leader Kayak for $1.8 billion in 2013.
Expedia shares rose 2.5% in after-hours trading the day the
agreement was announced, indicating that financial analysts viewed the
acquisition as a good deal.
In a Nov. 5 note to clients, Guggenheim analyst Jake Fuller
wrote, “Alternative accommodations have gone mainstream, and HomeAway should
put Expedia in the game as a share leader.”
Deutsche Bank analyst Lloyd Malmsey, in his Nov. 5 note to
clients, said the acquisition “has home-run potential.”
Expedia’s collaboration with HomeAway dates to October 2013,
when Expedia started a trial program that included the listing of 10,000
HomeAway vacation rentals. Last September, that number was expanded to more
HomeAway, which was founded in 2005, tweaked its business
model two years ago. The company, which initially derived client revenue solely
from annual listing fees, started offering a commission-based model similar to
Airbnb’s in 2013 and expanded that model to VRBO searly last year.
Sharples said about half of HomeAway’s listings are managed
using the original model, while the other half employ a model based on 10%
HomeAway, which went public in 2011, announced its
third-quarter financial results last week. Net income more than doubled from a
year earlier, to $10.4 million, while revenue rose 12% from a year earlier, to
$130.7 million. Paid listings were up 16%, to about 1.2 million. Through Sept.
30, revenue rose 11%, to $375.6 million, about one-fifth of Expedia’s revenue.
Though Airbnb does not disclose revenue or bookings figures,
it appears to have leapfrogged HomeAway in terms of global presence. How
Expedia’s ownership of HomeAway will impact Airbnb’s growth remains a topic of
Quinby said, “There is some inventory overlap [between
HomeAway and Airbnb], but not much. Each has its strengths in different
Expedia agreed to pay $38.31 a share for HomeAway, a 20%
premium over HomeAway’s closing price on Nov. 4, the day the agreement was
announced after markets closed. HomeAway is expected to continue to operate out
of Austin, Texas.