Since early October, the shares of HomeAway (NASDAQ:AWAY) had dropped by about 20%. But lately, they’ve staged a nice rally. In fact, in today’s trading, the stock is up 5% to $22.61 (in June 2011, HomeAway came public at $27 a share). It got a buy rating from an analyst at Barclay’s (NYSE:BCS) and some nice comments from Jim Cramer (who says he uses the company’s service).
HomeAway is the world’s largest marketplace for vacation rentals, with 720,000 listings in 168 countries. To make money, it charges ongoing subscription fees to property owners. The service is free for renters.
Growth has been strong and steady. During the latest quarter, revenues increased by nearly 20% to $73.1 million, and adjusted EBITDA rose by 12% to $24.2 million.
I recently visited HomeAway, which is based in Austin, Texas, and had a chance to talk to the CFO. All in all, I was impressed with the company’s platform. As seen with other entrenched online marketplaces like eBay (NASDAQ:EBAY), it’s tough for rivals to displace them. This is because of the virtuous cycle known as the “network effect.”
According to HomeAway’s S-1: “As we have grown, a broader selection of vacation rentals has attracted more travelers, and a broader audience of travelers has attracted more vacation rental listings from property owners and managers.” That’s how the strong get stronger.
What’s more, the market opportunity is massive. Consider that there are 19.6 million vacation rental properties in the U.S. and Europe.
For the near term, HomeAway could be poised for further gains. After all, the online travel sector has been hot, as seen with companies like Expedia (NASDAQ:EXPE) and TripAdvisor (NASDAQ:TRIP). Besides, with the U.S. economy on the mend (however grudingly), chances are good that families will want to book more vacations — and they may want something more than a hotel experience. And that’s exactly what they can easily get from HomeAway.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.