Barclays Upgrades HomeAway on Improved PPB, Opportunities

In a report published Monday, Barclays analyst Christopher Merwin upgraded shares of HomeAway, Inc. (NASDAQ: AWAY) from Equal Weight to Overweight and raised the price target from $34.00 to $48.00 due to improved Pay-Per-Booking (PPB) revenues outlook and multiple opportunities. Merwin commented, "We are upgrading shares of AWAY to Overweight from Equal Weight due to our improving outlook for Pay-Per-Booking (PPB) revenues, increasing adoption of booking and payment-enabled listings that should drive upside to ancillary revenues, and a growing opportunity in Asia Pacific. In addition, we believe AWAY's recent partnership with Expedia to distribute listings on their sites is evidence of increasing interest by the OTAs in the vacation rentals category that will most likely be expressed through further partnerships or consolidation, rather than organic competition, in our view."

The analyst reported that traffic could aid in PPB revenue opportunity and is optimistic on PPB's long-term opportunity. Merwin estimates that PPB listings will hit 270,000 and generate $30 million in incremental revenues. Due to this optimism, Barclays raised 2014 FCF estimate from $116 million to $123 million.

Barclays noted that e-commerce adoption could reach 42% of total listings by the end of 2016, up 11% in 3Q13, driving ancillary revenue growth. The analyst added, "We believe e-commerce adoption will provide a tailwind to ancillary revenues, which we now expect will accelerate to 29% y/y growth in 2015, up from 27% y/y growth in 2014."

Barclays emphasized that recent Asia Pacific acquisitions are attractive sources for long-term growth given the large and increasing class of travelers in the region. The analyst commented on the five acquisitions since 2011, and pointed out the most recent acquisition of Stayz for approximately $198 million.

Shares of HomeAway closed at $41.34 on Friday and are currently down 2.08% at $40.48.