The Biggest Opportunity I Saw at South By Southwest
The first thing you notice about HomeAway's (NAS: AWAY) Austin, Texas, headquarters is the opulence. On a pristine corner off 5th Street in downtown, and comfortably located across from Whole Foods Market's flagship store, the building's reflective glass shined as best it could on an otherwise rainy and cold Friday here during our first day at the South By Southwest Interactive conference, or SXSW as attendees call it.
The interior was no less impressive. Wood-paneled halls and concrete floors opened into a well-appointed main floor with walls covered in travel-themed art. My first thought upon entering: How much shareholder cash has HomeAway spent cozying up the office?
The man who helped start it all
All that changed after I met CEO Brian Sharples. Tall, thin, and deliberately bald -- he Foolishly shaved his head after losing a bet with staff -- HomeAway's co-founder is a bicoastal entrepreneur (raised in the Northeast, graduated from Stanford) who settled in Austin after a career in consulting.
He's also a self-trained artist. The expensive art on the walls? Sharples is responsible for most of it. An accompanying collection of travel-themed snow globes from around the world adds a touch of folly.
If HomeAway has spent much on its HQ, it's to certify the place as virtually carbon-neutral: The PR staff says the building is federally certified by Leadership in Energy and Environmental Design. Sharples, whose art features recycled products, apparently prefers it this way.
3 Big Ideas from the interview
Fellow Fool Evan Niu and I had 30 minutes with Sharples. Here are our two questions, which he answered in detail:
- How are HomeAway staff screening new listings as the company grows?
- How do add-on services such as direct traveler billing affect the growth story?
We were seeking to better understand HomeAway's advantages in light of growing concern among Fools and others over the company's $0.13-per-share earnings miss in the fourth quarter. The company saw increased competition from privately held disruptor AirBnB and Expedia spinoff TripAdvisor (NAS: TRIP) , which owns vacation rental listings site FlipKey and which generated nearly three times as much cash from operations last year.
Sharples, for his part, exuded confidence during the interview. Turns out he has three good reasons to believe in the company he co-founded:
There's a concurrent growth story under way here. Up until now, most of HomeAway's growth has come from a combination of acquisitions and organic listings growth. More properties listed means more opportunities to charge the standard listing fee. Sharples says that will begin to change this year, as HomeAway introduces tiered pricing options, giving owners the Google-like opportunity to position their properties high in searches for a particular region. The resulting increases should carry close to a 100% margin.
Similarly, HomeAway is working on invoice add-ons that are, ostensibly, insurance products. One protects travelers in the case of a damage dispute. Another protects against fraudulent advertising by owners. And finally, there's a standard travel-insurance option for those who have to cancel unexpectedly. Third-party insurance carriers will do the work of writing policies while HomeAway collects fees, and more high-margin revenue, upfront. In this sense, Sharples is positioning HomeAway to be much more like a classic travel portal. Think of priceline.com (NAS: PCLN) , which outsources underwriting of its insurance products to a division of AEGON in The Netherlands and then collects a fee for the effort.
Scale matters, but it also isn't cheap. HomeAway's biggest challenge may be scaling up staff to vet new listings. Most of the work is automated through database checks -- i.e., when an owner lists a property, the address is automatically checked against civic records. But in cases where property features (the view, the presence of a pool, etc.) come into question, HomeAway gets staff involved. The more listings it acquires, the more investigators HomeAway will need. The good news? Competitors face this same problem yet may not be as automated or organized.
- The one metric the matters most. As we like to do with every executive who lends time to talk with us, we asked Sharples about the metric that matters most to him as CEO and his team. His answer? Traveler inquiries. Sharples says HomeAway doesn't report this metric to the Street because it fluctuates -- and sometimes that's good. A property that gets lots of inquiries might reflect interest, but it might also reflect a hard-to-decipher listing that's otherwise located in a great area. Sharples says he wants to get to a point where every owner is getting high-quality inquiries that lead to lucrative bookings. Smart.
Do you agree? Disagree? Either way, it makes sense to think about the ways digital technologies are changing bricks-and-mortar industries. We can help. The Motley Fool has dug into the trend with a new video special report. Watch now, and you'll walk away with a better understanding of the cloud-computing movement that helped shape this year's SXSW. The research is free, but only for a limited time. Get started right away!
At the time this article was published Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Google at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool owns shares of TripAdvisor and Google. Motley Fool newsletter services have recommended buying shares of Google, priceline.com, and HomeAway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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