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📮The Sunday Newsletter archive

Time for vacations

The IPO market has been quite boring lately. Since Robinhood’s debut ($HOOD) a few weeks ago, no other really interesting company has hit the market, and next week won’t be much different. So instead of skipping the Sunday Newsletter for the second week in a row, in today’s issue, we’ll discuss a promising name that’s going public in the near future. It’s Vacasa 🌴, an Airbnb ($ABNB) competitor (and partner).

In late July, Vacasa announced that it struck a deal with SPAC TPG Pace Solutions ($TPGS) to go public in a $4.5 billion valuation. Vacasa is tiny compared to the $89 billion giant Airbnb, but it’s an interesting company to put on your radar, let’s see why.

🤝More partners than competitors

Vacasa is known as an alternative platform to Airbnb, but the company’s focus is actually different. While it does have a direct booking site, Vacasa is essentially a property management firm. It manages vacation rentals and increases earnings for owners by cross-listing and advertising the properties on dozens of other booking platforms. In Destin, Florida, for example, 47% of Airbnb listings are managed by Vacasa, according to investor presentation, so the companies are definitely more partners than competitors.

Vacasa is a tech company. It uses AI and machine learning to dynamically adjust prices and optimize listings. As it says, homeowners who switch to Vacasa from another vacation rental manager, earn an average of 21% more per year.👇

Increase in revenue per unit when switching to Vacasa.

By listing properties on other platforms and optimizing listings, Vacasa achieves a 31.6% increase in nighs sold per unit; impressive result.


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Covid? What Covid?

2020 was a horrible year for the travel industry. Airbnb revenue fell 30% while losses increased 600%. One of the largest companies in the space, Booking.com ($BKNG) suffered even more as its own revenue tumbled 55%.

Unlike its peers, Vacasa continued to grow as if nothing happened 😎. Revenue jumped 64% to $492 million and bookings increased 58% to $935 million. The company was actually hit during the first lockdowns in early 2020 but recovered super fast. In Q2 bookings fell 26.3% sequentially but in Q3 they rebounded and reached new highs. The reason might be the company’s relatively small size. Airbnb had $23.9 billion in bookings last year, not even comparable to Vacasa’s $935 million. So as a smaller company it managed to recover much faster from the pandemic.

In the post-pandemic world, Vacasa projects a 31% multi-year revenue growth, driven by the growing consumer preference for vacation rentals and other trends like remote work. It’s true that this is a high growth market; research firm Technavio expects the vacation rental market size to increase by $63 billion between 2020 and 2024. Vacasa as one of the leading companies in its space is well-positioned to win.

Reasonably valued deal ✅

At $10 per share, the SPAC deal values Vacasa at $4.5 billion. At this price, the company trades at just 9.1x sales, much cheaper than Airbnb’s 27x multiple, even though it’s been more resilient during the pandemic.

Airbnb stock chart.

Airbnb’s popularity is one of the main reasons for its premium valuation, but Vacasa is essentially the other side of the same coin. Since most of the properties it manages are listed on platforms like Airbnb and Booking.com, their growth rates will be similar in the future. So its lower valuation would make Vacasa an attractive stock once the deal is complete.

What else?

Although Vacasa seems reasonably valued and has interesting future potential, the company is still private. So over the next few months, shares of the SPAC will probably go nowhere.

Also, shares of newly deSPACed firms tend to perform poorly in the short term — see SoFi ($SOFI) or Lucid Motors ($LCID). In other words, even when the SPAC deal is complete, Vacasa won’t be a buy right away. It’s a beautiful company, but for now, you could just add it to your watchlist for future consideration.


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