HomeAway has trekked into the big leagues of travel booking by betting that an investor’s waterfront villa, a retiree’s ski condo or a family’s spare summer house can trump a hotel as a great place to stay.

A vacation rentals marketplace, HomeAway (AWAY) is now the fifth largest company by market cap in IBD’s Leisure-Travel Booking industry group, after giant Priceline.com (PCLN), TripAdvisor (TRIP), Expedia (EXPE) and Ctrip.com (CTRP). HomeAway stock traveled north 86% in 2013 and is up another 2% this year.

homeAway

With about $330 million in annual revenue, HomeAway remains a distance from the biggest online travel players. But co-founder and CEO Brian Sharples isn’t afraid to take calculated risks to grow the company, which has made 22 acquisitions in the last eight years.

HomeAway bought Australia-based Stayz Group on Dec. 2 for $198 million. Sharples, while in Australia to consolidate the Stayz purchase, talked with IBD about the prospects for his company and the online travel market in 2014.

IBD: How is the Stayz integration coming?

Sharples: We’re really pleased. We had a company here in Melbourne already that was No. 2 in the market. We’re now the clear leader in this region. We expect to leverage that with our other Asia-Pacific assets, for example our businesses in Singapore and New Zealand. And we opened in China early in 2013.stayz

It’s very much like in 2006-07 when we acquired assets in Europe and spent time building that into a pan-European business.

IBD: How big is the market opportunity for vacation travel?

Sharples: We have 800,000 vacation rental listings, and there are 7 million to 10 million … rentals available (globally). Our share is still quite low. It can get a lot better.

We have a very young company, founded in 2005 (July 2011 IPO). We’re the leader in the category, but it’s still a very early inning.

IBD: What macro trends will shape the rental industry this year?

Sharples: In general, vacation rental suppliers are impacted by the strength of second-home real estate markets. In times of low sales and tight credit, many owners turn to rentals as a source of extra income. In times where markets are more robust, we see more new construction and sales of vacation homes, and therefore the potential pool of supply grows. In 2014 we expect supply to expand as real estate markets stabilize.

IBD: What others issues are affecting the industry?

Sharples: Travelers are impacted by their own assessment of economic conditions, as well as things like the cost of airfare. We expect to see solid growth in travel next year as the economy improves, and also expect competition among airlines to keep the cost of travel reasonable.

IBD: What sets HomeAway apart from your competitors?

Sharples: The biggest advantage we have, and biggest barrier to entry for others, is we’re the market leader.

The most-reviewed HomeAway luxury rental is Casa de Frutas in Costa Rica. It sleeps 8 for $4,500-$6,000 a week, has a butler, and monkeys visit.

The most-reviewed HomeAway luxury rental is Casa de Frutas in Costa Rica. It sleeps 8 for $4,500-$6,000 a week, has a butler, and monkeys visit. Casa de Frutas in Costa Rica

This is a classic marketplace business. We market directly to consumers, both for the supply and demand part of that.

What sets anyone apart is scale. You feel better off in a market that has scale. We have many multiples (of rentals) of anyone else in the world, and several times the consumer traffic.

IBD: Do you plan to expand into any new markets?

Sharples: We’re hard at work to expand in South America.

We have a very strong position in Brazil, the biggest vacation site in South America. We’re No. 1 there. We’re also building a base in Argentina.

And we’re looking at Eastern Europe. We haven’t had much activity there but there’s quite a bit of vacation volume rentals, for example in Russia and Turkey.

IBD: What is HomeAway’s acquisition strategy?

Sharples: Mainly what we do is look for leaders in new geographies. We look for profitable businesses first of all. Next we look for high quality rentals.

We’re going country by country around the world, and in discussions with many companies.

In Spain we decided to go it on our own. That’s been hugely successful for us. We’re the leading (online travel) company in Spain.

There were companies to buy there, but we didn’t because of the (high) price.

IBD: How would you describe typical vacation travel customers?

Sharples: For us that’s a real differentiator. Our customers are first and foremost families. Statistically, 70% to 80% are families with two or three kids and looking for a place to rent with more space and comfort than a hotel.

The balance are groups traveling. For example, guys going skiing, or a girls weekend out or college buddies who get together once a year.

Our customers are also relatively older and more affluent than other companies’.

IBD: What’s your 2014 outlook for the vacation home rental industry?

Sharples: We’re expecting strong growth rates to continue.

We care about the overall economy. But it doesn’t affect our business as much as other businesses. In a good economy, people buy and rent more vacation homes. In a bad economy, people who have vacation homes decide to rent them because they need money.

From what I’m seeing, Europe is stabilizing, the U.S. is getting stronger and Asian growth is unabated.

In Brazil the World Cup is coming and the Olympics. I’m optimistic about the coming year.

IBD: How is the online vacation industry evolving?

HomeAway CEO Brian Sharples is exploring South America horizons.

Sharples: Our marketplace has historically been a classified (ads) market. The vacationer and rental owner agree on a price and go off and figure out how to make that happen.

This year we built and launched online pay-per-booking capability. We will operate a little more like the hotel industry. Consumers like to pay by credit card. They want to see an invoice and what they owe.

More and more we’re pushing transactions to happen through our platform.

(HomeAway.com started offering a pay-per-booking arrangement last year, and on Thursday said it’s also available on VRBO.com, a vacation-rentals-by-owner site it operates.)

IBD: What lessons did you learn as HomeAway grew from startup to the market leader?

Sharples: Lessons learned from failure are the most important ingredients to success. I spend time when I bring people into the company focusing on what things have gone wrong in their lives and how they learned from them.

My first company I ever started in my late 20s was a spectacular failure. I lost almost all of the money quickly. I was trying to build a marketplace for used automobiles with physical sites. I would go to football stadiums and set up massive events. A freak storm came in and literally destroyed the event. That taught me you have to work hard to plan for things that might go wrong.

IBD: What could HomeAway be doing better?

Sharples: Our model is not as clean as finding and booking a hotel room online is. Our goal this year is to make it as easy as booking their hotel room. We’re a 5 or 6 on that today on a 1-to-10 scale. And we hope to get to a 9 or 10 this year.

Source: Investors.com

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