HomeAway's Transition Under Expedia 'Progressing Well' Cantor Says; Reiterates Buy

Cantor Fitzgerald has reiterated its Buy rating and $180 price target on Expedia Inc (NASDAQ: EXPE), saying that its checks indicate HomeAway's transition is progressing well, with robust growth in paid search volume and a wide range of changes to the website.

HomeAway's Importance To Expedia

"If sustained, such a trend should allow HomeAway to comfortably top mgt's own target of $350+ million in EBITDA contribution in 2018, in our view," analyst Naved Khan wrote in a note.

In December 2015, online travel company Expedia completed its $3.9 billion acquisition of vacation rental site HomeAway to tap the lucrative market of apartments and vacation homes.

Khan noted that HomeAway is benefiting from "Expedia's expertise in driving transactions, variable ad spending (particularly on paid search) and improving traffic conversions."

Related Link: Cantor Fitzgerald Maintains Buy On Priceline Despite Poor Outlook Overshadowed Solid Q1 Results

The analyst said his analysis showed online bookable listings with a traveler services fee (TSF) dominate top search results, which could drive transaction-based revenues over time.

Khan continued that the average 6.6 percent TSF is unlikely to adversely impact consumer booking behavior.

"We also note that even with the TSF, HomeAway's fee is still the lowest among the major players, with both Airbnb and Tripadvisor Inc (NASDAQ: TRIP) charging a 12 percent service fee to travelers, while Priceline Group Inc (NASDAQ: PCLN) has a ~15 percent take rate on its comparable inventory," Khan elaborated.

Other Catalysts

The analysis also found higher paid click volume, reflecting growing focus on variable advertising and transactions.

"While HomeAway's transition to a transaction-driven model is still in the very early stages, we view the increase in paid click volume as an indication that HomeAway's efforts to replicate Expedia's playbook (by leveraging variable traffic to drive more transactions and improving conversions through iterative test/learn) are well under way," Khan highlighted.

In addition, the analyst said the online transactions should get a boost from HomeAway's efforts to make its cancellation policy more standardized and transparent, as it helps reduce the friction in transactions and increase conversion rates.

At the time of writing, shares of Expedia were down 0.08 percent to $110.40.