Vacasa ( VCSA -2.06% ) generated almost $900 million in revenue last year yet it has less than 1% of the market, leaving considerable growth opportunity ahead. In this clip from “Real Talk” on Motley Fool Live, recorded on March 18, Motley Fool contributors Matt Frankel and Jason Hall discuss Vacasa’s business model, financials, and its strategy to scale.
Matt Frankel: The next one is one that I don’t own but it’s high on my watch list right now because I think it’s a very interesting business. This is Vacasa, ticker symbol VCSA. As a vacation homeowner, this is a very intriguing business to me because I’ve been a real estate investor for a while. I’ve owned long-term rentals and I recently bought my first vacation rental about a year ago. I got to tell you, I like the vacation rental model better from the ownership perspective. It’s a lot less to do because of great property managers in the space like Vacasa. Full disclosure, I don’t use Vacasa because I’m not allowed to. I’m required to use a certain property manager based on where my house is. Anyway, Vacasa is the largest manager of vacation rentals in the United States. They manage about 35,000 vacation homes across the country. They were a SPAC IPO. That should tell you their stock hasn’t done well because of what SPAC has. They just went public in December. I actually had CEO Matt Roberts on Real Talk on the day they went public, which was nice. He was a really fun interview. I’ll post a couple of clips from that when I’m done talking. It’s actually down about 20% from its SPAC IPO price, about a $3.5 billion valuation. It’s a really interesting business because the vacation rental model, I don’t know, Jason, if you’re familiar with how property management works. For long-term rentals, they basically sign a tenant and take 10% of the rent.
Jason Hall: Right. Then you still pay for everything else in terms of repairs and maintenance.
Frankel: Right. You still pay for everything else. Your property manager doesn’t do a whole lot, if we’re being totally honest. Sorry to any property managers listening.
Hall: They take the calls and then pass the information along for you to handle it.
Frankel: Right. They deal with a lot of the hassles, but it’s not a very hands-on job. Vacation rental managers generally take 30% to 35% of the rent. But, they’re getting short-term tenants. Instead of getting one tenant in place, they have to book a new one every few days. They have to clean the place between tenants. They have to make sure there are towels and linens and things like that. They have to make sure all the light bulbs work. All this stuff they have to do. It’s a very fragmented market opportunity.
Frankel: There are over 20,000 vacation rental managers in the United States. I mentioned Vacasa is the No. 1. They have less than 1% of the market. That’s a really fragmented business. There are no national brands when it comes to vacation rental management other than Vacasa. Even Matt Roberts, the CEO, admitted it. He’s trying to build them into a national brand. They are not there just yet. This business could 10X from its current size and still have a 7% market share, which I think is definitely doable from a big brand. They have a lot of advantages. Obviously, efficiency. If you manage 10 vacation rentals versus 35,000, there’s a lot of efficiency advantages you can have. Unlike most SPAC IPOs, they have completely blown away their expectations. SPACs were notorious, and Jason and I have talked about this several times, for really just putting unrealistic numbers into their projections. They project next year we’re going to 10X our revenue, then we are going to 7X it again, and then we’re going to 5X the next. It just wasn’t realistic in a lot of cases. I’m not going to mention any company names because some of them are companies I like but there were a lot of unrealistic expectations, and now we’re starting to see they aren’t really realistic.
Frankel: Vacasa actually blew past its expectations. They generated almost $900 million in revenue last year, which was $130 million more than their initial SPAC target. Their 2022 guidance is well ahead of their initial SPAC goals. They are expecting to be adjusted EBITDA profitable in 2023, so next year. They have over $350 million of cash on their balance sheet that they got from when they went public. They have no long-term debt. Well, they have, I think, like $500,000, virtually nothing. One thing, and I’ll kick it over to Jason after this, a lot of people worry about Vacasa because they think of them as a competitor to Airbnb ( ABNB 0.76% ).
Hall: Yeah, not the case.
Frankel: Not the case. In fact, you know what Vacasa’s biggest source of bookings is?
Frankel: Airbnb. They take your property as part of their full service. They list it on platforms like Airbnb, which is where a lot of their rentals come from. They are not a competitor with Airbnb. Airbnb is for either companies like Vacasa or for vacation homeowners who want to self-manage. Vacasa is a full service manager. So, a big difference between the two businesses.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.