Is HomeAway a Financial Haven? Earnings +/+

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Perfect Island HomeHomeAway announced quarterly results that exceeded revenue and met profit estimates.  Revenue of $114.3M beat the $110.4M estimate and EPS of $0.15 met Wall St estimate.  Revenue guidance of $114.5-116.5 mln was better than the projected $113.6 as well.  After hours, the stock traded up 11% to $36.20 on the better than expected results and guidance (+/+).

Growth Rates

Growth boosted by performance listings in Europe.  Listings growth of 34% was boosted by the addition of performance listings in Europe which is an incremental opportunity for the company.  This higher margin category boosted revenue  per listing as well as listings growth.  On the call, Brian Sharples, CEO, mentioned that July is seeing this accelerating trend continue.

July14 metrics

 

So what’s the stock worth?

Well, that depends on your outlook for the future, Take what you think is the right growth rate and multiple then look up a value on the table below.  But before you do that, if you like this blog, help us get the word out by following us on Twitter.

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Price Target

All Aboard the Facebook Train, Next Stop $100

Train to $100Facebook blew out profit estimates yesterday on in line revenue.  However if you look beyond the headlines and dive into the numbers, It’s really a simple story that will bring Facebook shares to $100: 1) companies are spending more on social media and mobile advertising, 2) the rest of the world is going to catch up to North America in the amount of spend per user, 3) cost control is letting the revenue flow through to profits and 4) this trend is going to accelerate as we head into back to school and the Christmas marketing season.  People don’t need a 60 page initiation of coverage report to figure this out, you need a 60 line financial model.  Take a minute and just look at the piece of the financial model that we think are important.  All the data came from the company’s financial report.

Advertising Spend per Monthly User

 

 

 

The amount of money advertisers are spending per average user is increasing but North America still leads the rest of the world.  This doesn’t need to be equal but its likely that Europe and Asia will close the gap, at least somewhat.

Margin expansion has been happening and will likely continue.    Margins are improving

 

 

This has been a steady expansion as both cost of goods and operating expenses have been slowly decreasing as a % of revenue.  Nothing exciting here but the profits.

Monthly active users in Asia and the rest of the world blow away North America and Europe and are continuing to grow.

Monthly Active Users

 

 

 

 

If you just took the current quarter’s EPS and ran it out for the next year, the company would receive $1.66 in earnings.  If you factor even 20% growth, you have $2 in earnings.  Facebook grew operating profit at 147% this quarter but if you only apply a multiple of 50 to the $2 in earnings, it is easy to see how the company is worth $100 per share.

NFLX Profits are Up and Rising but Options are a Safer Play

Reed Hastings, CEO

Reed Hastings, CEO

Netflix has seen a tremendous increase in the monthly profit per customer since 1Q13 and this is likely to continue for some time.  The only problems are the valuation and the fact that the stock is already up 40% since the announcement of the price increase.

Lets start taking this apart by looking at monthly profit per subscriber taken from the quarterly earnings report:

Netflix Customer Monthly Data

(Click to enlarge) Netflix Customer Monthly Data

Profit per customer is up substantially: If you look at customer profit, you can see a dramatic increase to $0.44 per month in June from $0.02 per month in March 2013.  This is probably due to a combination of the international expansion and lower cost of DVD servicing as the number of DVD subscribers declines.  If you look at the Y/Y growth for customers and profit, you can see the dramatic decline in DVD subs at the same time that profit growth is rocketing.

Netflix Year over Year growth

Netflix Year over Year growth

As Netflix rolls deeper into Europe and the financial benefits increasing prices contribute to top line growth through out the next year and a half, numbers should continue to improve.

Valuation is scary: The two problems are the valuation and the 40% increase in share price since the announcement.  The stock trading at 150x trailing earnings so a good chunk of the price increase is probably already priced in.

Share price since announcement

Share price since announcement

Stock up 40% since announcement: The chart above is the price since the May 9th announcement of raising prices.  If you want to participate in Netflix today, rather than buying the stock outright, I would consider selling a deep out of the money puts or a put spread.

How the NFLX Put Sale works: By selling puts I would be acting like an insurance company but for investors.  The strike price of the contract I sell would be the price I would have to pay for the shares if the stock is put to me.  You don’t make nearly as much money as buying a high flying stock outright but you can reduce the risk you are taking on.  Lets look at an example.  If I sold a January 2015 put with a strike price of 410, I would not have the stock put to me unless it falls more than 10% from yesterday’s closing price ($455 – 45 = 410).  If the stock remains above $410, I would sit back and wait for the contract to expire and keep the price I received for selling the contract. In this case, the price for a $410 Jan 15 put is $28.  Selling puts is not for everybody, it locks in your upside and it may seem complicated at first but it is less risky than buying the stock outright.

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$AWAY, Best bet for a smallcap breakout from tech earnings this week

After looking at the technology stocks that are reporting this week one midcap stands out that could be a runaway home run.  Homeaway (AWAY) is in the midst of a business model change that could accelerate listings growth substantially and this is likely to be the quarter we see the inflection point. Perfect Island Home

Homeaway is a home rental booking service focused on allowing people to rent out vacation homes or residences that are used for only part of the year.  For a family traveling, this can offer a substantial discount from renting multiple hotel rooms while offering a luxury experience.

The problem was that Homeaway originally began offering its booking service as an annual subscription but this alienated a large part of the market.  Why pay a booking agent a subscription fee for an entire year when you only need its service for 4 months?  In 4Q14, Homeaway began to offer a Pay per booking option that is being rolled out among its European client base this quarter, just in time for the summer holiday.  It helped last quarter but could cause an inflection point now as incremental listings contribute to top and bottom line growth during the summer season.

 

Revenue breakout

 

 

 

(Click to enlarge)
Revenue is a combination of subscription and performance listings, performance being higher margin.

HomeAway Growth

 

 

 

 

 

 

 

As you can see in the table above, Revenue growth accelerated dramatically going from Q4 to Q1 and this may just be the hint of what’s to come.

rev vs listings

Listings and revenue run hand in hand and listings growth may be accelerating.

Last quarter, the company beat consensus by $5 million in revenue and $0.02 in earnings.  If this business model change does reflect a sustainable improvement in revenue growth from the current 28% to 50% and the company can improve net margin to 10%, an earnings number of $0.65 is within reach.  The stock isn’t cheap but there is room for upside depending on the multiple you use.  If these numbers are on track for next year and it remains a potential acquisition target, you could make a case for the stock doubling in the next 12 months to $65.