• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Consumer Discretionary

Stay AWAY from Expedia and HomeAway Tie-Up

This deal will wreck the combined company's margins.
By CHRIS LAUDANI Nov 05, 2015 | 08:00 AM EST
Stocks quotes in this article: EXPE, AWAY, PCLN, TRIP

Late Wednesday, hotel and travel site Expedia (EXPE) announced that it had reached an agreement to buy "alternative accommodation" site HomeAway (AWAY) for $3.9 billion. While this is an attempt to fill a hole in Expedia's strategy, this is a risky deal since both companies are losing market share to disruptive startup Airbnb. I believe the deal will wreck the combined company's margins.

Expedia agreed to pay $10.15 in cash plus 0.2065 shares for each HomeAway share. The total price tag works out to $3.9 billion. The deal is an 18% premium over HomeAway's last closing price of $32.04. Expedia has been keeping an eye on the alternative accommodation market for the past few years. The company has been building a relationship with HomeAway for the last two years. Expedia has been listing HomeAway's vacation rentals and second-home listings next to its hotel listings. Buying HomeAway allows Expedia more control over the market for apartments and vacation homes.

Expedia's listings are mostly hotels, and the deal should help it compete with vacation-based websites like Priceline (PCLN) and TripAdvisor (TRIP).

But this doesn't solve HomeAway's largest problem, which is its mixed listing environment. HomeAway started out as a subscription site. Property managers and owners paid a fixed monthly subscription to list their rentals. Owners could pay additional fees to feature their property on the site. Bookings flooded in and property owners made a lot of money.

Then privately held Airbnb came along and offered property owners a model called pay-per-booking. Instead of paying a subscription fee, property owners could list their rental for free and only pay a fee if the place rented. This commission-based model proved very popular with property owners since they would only pay if their unit actually rented. In addition, property owners have between 24 and 48 hours to reject any reservation, so the commission model carries no risk. List your property for free and, if it rents, you can decide if you want to take the money.

HomeAway has been struggling to make its pay-per-booking model work. When the company reported its third-quarter results in late July, HomeAdvisor had more than 300,000 commission only listings. Subscribers are upset because they are paying fees whether their property rents or not and the site is featuring properties that only pay commissions. As users have become dissatisfied, churn has increased.

Now, throw Expedia into the mix. HomeAway and Expedia have been working together to battle Airbnb, which continues to take market share, since its business model is more attractive to property owners and there is no conflict between subscription users and commission users. Airbnb doesn't have a mixed platform, so all the properties it features on its site only pay commissions.

With the HomeAway acquisition, I'm afraid Expedia's margins will come down. Hotel bookings have a much higher commission rate. Hotel commissions are between 15% and 18%, while pay-per-booking commissions are between 5% and 6%.

Expedia's management believes that it can drive more revenue by putting HomeAway's listings on its own hotel and travel platform. HomeAway won't be integrated into Expedia and will be allowed to run independently.

While Wall Street will love this deal (what deal doesn't the Street love?), I see significant risk. While the companies are trying to figure out how to monetize their platform, Airbnb will continue to plug away without any distractions, and Expedia's margins may come under pressure during the transition.

I would stay AWAY.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Laudani had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Consumer Discretionary

More from Consumer Discretionary

Boot Barn Gets a Quant Upgrade: Do the Charts Fit?

Bruce Kamich
Jan 19, 2021 1:53 PM EST

Here's our latest analysis and trading strategy for the shares.

Signet Jewelers May Retest the Breakout From Its Base Pattern

Bruce Kamich
Jan 15, 2021 8:09 AM EST

There is a risk of a pullback to the top of the base pattern or down to the $30 area.

Norwegian Cruise Lines Fights to Survive

Jonathan Heller
Jan 13, 2021 11:00 AM EST

The markets appear to be looking forward for the cruise industry.

Coca-Cola Could Turn Lower as the Bullish Fizz Is Escaping

Bruce Kamich
Jan 6, 2021 9:15 AM EST

Price momentum often weakens before a turn lower.

Planet Fitness Charts Suggest Its Shares Could Use Some Firming Up

Bruce Kamich
Jan 6, 2021 8:11 AM EST

The technical signals indicate that the stock of the fitness chain could head lower in the weeks ahead.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:09 AM EST GARY BERMAN

    Is Copper About to Turn to Rust?

    Below is a very long-term copper chart.  As you...
  • 08:02 AM EST GARY BERMAN

    Tuesday Morning Fibocall for for 1/19/2021

    SPX (Long-Term View) The 1/8/21 high @ 3826.69 i...
  • 09:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    When it's time to sell, will you act or freeze?
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login