Monday, September 26, 2022
HomeValue InvestingOne other return of the Journey Sequence half 11 – HomeToGo SE:...

One other return of the Journey Sequence half 11 – HomeToGo SE: The German AirBnB or the subsequent Trivago ?


Disclaimer: This isn’t funding recommendation however my private (and sometimes unqualified) opinion. PLEASE DO YOUR OWN RESEARCH !!!

Background & Intro

Long run readers of my weblog would possibly keep in mind a sure obsession with journey corporations over the previous few years. Amongst different posts, the principle evaluation had been these ones:

Half 1 – Lastminute.com
Half 2 – Expedia
Half 3 – Trivago
Half 4 – Flight Centre – e-book evaluate
Half 5 – Flight Centre
Half 6 – Tripadvisor
Half 7 – Tripadvisor (cont)
Half 8 – GDS (Sabre, Amadeus and many others.)
Half 9 – Expedia (cont)
Half 10 – AirBnB

Apart from a brief, mildly profitable (and really fortunate) hypothesis in Expedia, I discovered the sector as “too exhausting” for me to speculate as too many issues had been shifting on the identical time:

The extra I look into these corporations, the harder the sector appears to develop into. There may be loads of basic change occurring, Which on the one facet is sweet for agile gamers however however makes it very tough to foretell something and extrapolate developments from the previous.

As a Worth  Investor, unpredictable fast-moving business modifications are tough. So as to spend money on such a sector, there ought to both be a big moat and/or incredible administration or a really low-cost valuation.

So why now trying once more at a journey firm ? To be sincere, I used to be motivated by a remark from “Celeb investor” Philipp “Pip” Kloeckner in my Twitter feed as I launched HomeToGo as a component of my “Bumsbuden Wikifolio” the place I gather German shares that I believe are staying away from makes loads of sense.

Pip commented that he has a really totally different opinion, which isn’t stunning, as he’s sitting on the Supervisory board and appear to carry round 100k shares that he acquired for consulting  within the early days of the corporate.

HomeToGo – The corporate and the enterprise: Trip leases

HomeToGo was based in 2014 and went public on September twenty second 2021 by way of a SPAC (extra on that later). It’s enterprise focuses on trip leases, mainly it’s a sort of German model of AirBNB.

The massive distinction to AirBnB is that HomeToGo acts each, as an aggregator in addition to promoting its personal stock. These are in fact two very totally different fashions:

The aggregator mannequin, i.e. aggregating and “reselling” stock from rivals is low margin but additionally low upkeep. Nevertheless, as Trivago exhibits, reseller fashions are usually not straightforward to run in the long run as resellers get squeezed from all sides (large guys, Google).

Trip leases is an attention-grabbing enterprise. In essence, it’s a two sided market place with renters on one facet and landlords on the opposite. AirBNB is the massive man, but additionally Reserving and Expedia have massively moved into this space.

As I’ve outlined within the AirBNB submit, a market place with a number of members on each side and really heterogeneous items shouldn’t be straightforward to keep up and doesn’t scale simply. These companies have to accumulate and retain loads of members on each side of the market place which is dear.

So far as I perceive, HTG began as pure Meta search (like Trivago) however has taken over a couple of corporations with rental stock and are pushing exhausting to promote their very own stock, which if I’m not mistaken, they name “on web site income”. This clearly pushes up take charges which have improved from ~6% traditionally to ~9% in Q3 2021.

HTG’s current development relative to rivals:

That is at an combination stage how HTG managed to develop in 9M 2021

9M numbers HTG 2021 (vs. yr in the past):
Gross income +9% (not Reserving income)
Web Income +28%

This seems to be fairly first rate, however let’s evaluate this with the massive guys:

9M AirBNB numbers:
Gross bookings: +48%
Income +67%

9M Expedia numbers:

Lodging +87% (Lodges & Leases)

So each, prime line and internet income development pales in comparison with the massive guys. That is fairly disappointing, as HTG has elevated advertising spend considerably in comparison with 2020. Over the 9M 2021, HTG spend 1,15x their gross revenue on advertising alone vs. 0,8x in 2020. Within the first 6M, pre SPAC this ratio was even larger with 1,3x.

To check this with AirBNB: They spend 0.23 of gross revenue for gross sales and advertising in 9M 2021 vs  0.3 in 9M 2020. So HTG hat to extend advertising spend by a number of magnitudes in comparison with AirBNB so as to get a fraction of development.

So it’s fairly clear that development comes nearly solely from huge advertising spend and acquisitions and they’re nowhere close to a scale the place advertising prices would enable to develop and earn cash. There appears to be little “natural” development which for a yr like 2021 may be very stunning.

Different observations:

  • HTG generates comparatively little working capital “float” which ifor different on-line journey companies is a crucial inside financing instrument
  • Gross revenue calculation for my part seems to be fairly unusual in contrast as an illustration to AirBNB which “solely” exhibits gross margins of 80% vs. 95% for HTG
  • fairly intensive use of “various” metrics similar to “Gross Reserving income” and “future receivables”
  • the administration of HTG solely holds 7% of the corporate in combination which signifies restricted worth creation earlier than the SPAC
  • Initially, the SPAC anticipated to boost 350 mn (275 SPAC + 75 mn pipe). ultimately, solely 250 mn EUR money was raised (see under)
  • additionally in 2019, pre pandemic, development was fairly low with 20% for such a younger firm regardless of having acquired two companies in 2018. The excessive development part appears to have been over by then.
  • Trip leases loved a “particular increase” due to individuals eager to keep away from crowded resorts within the final yr. It must be seen if this may proceed or if vacationers in some unspecified time in the future in time return to “full service”
  • They acquired a small Software program firm Smoobu for round 20 mn EUR in 2021 which appears to be their “subscription” enterprise that they present within the investor presentation
  • A big contribution to previous development appear to have been acquisitions, similar to Casamundo in 2018 or Tripping.com. Acquisitions appear to be the cornerstone of their development technique
  • Curiously, all workers of Casamundo had been fired in 2020. Which may have saved the underside line however is perhaps a nasty begin to purchase comparable companies sooner or later
  • Earlier than getting “SPACed”, they raised already round 175 mn USD, which explains the low shares of the founders
  • As a part of its Meta-search enterprise, type 2018-2020, round 60% of revenues had been targeting the largest 3 companions, in line with the prospectus, for the primary 6M 2021 the largest companion alone accounted for 40% of revenues
  • From 2018-2020 HomeToGo has burnt round 25 mn EUR per yr, the 150 mn uSD raised in December 2018 appear to have been gone by the point of the SPAC
  • As of 6M 2021, in line with the prospectus, nonetheless 60% of gross sales got here by way of 3 companions, thereof 40% from one companion. So the Meta search enterprise appears to have the very same points as struggling Trivago
  • Buying retail prospects is dear and I didn’t actually discover good info how useful these buyer relationships are. Trip leases are extra rare buy which normally implies that LTVs are usually not so nice.
  • Competitors even within the mid market is fierce. There appear to be at the very least one other 5-10 or so bigger gamers competing each, for renters and landlords.
  • On a private stage as buyer, I discover HTG’s UX fairly mediocre. HTG’s personal stock usually has only a few rankings. They declare to combination amongst different AIRBnB however after I did a couple of checks, AIRBnB stock didn’t present up. From a buyer perspective, I don’t assume that they’ve any USP.
  • Once more, on a private stage, I did use nearly solely trip leases through the pandemic, however I’m longing to return to comfy resorts.

The SPAC

The SPAC that really merged with HTG was initiated by Klaus Hommels, who, shock, was already invested into HTG earlier than. Hommels is a European VC with a good repute.

The SPAC as such was not so dangerous as others, particularly with regard to the SPAC’s founders shares which needed to clear a sure hurdle so as to vest in line with the prospectus (Prospectus-_2021-09-20🙂

Funding by the Founders – The Founders maintain class B shares (“Founder Shares” and along with the category A shares of the Firm, the “Shares”) which might be convertible into class A shares of the Firm (the “Public Shares”) and 5,350,875 Class B warrants (the “Founder Warrants”) that might be exercisable for Public Shares. 2,551,667 Founder Shares (together with the 207,372 Founder Shares redeemed by the Sponsor as a part of the payback of the remaining quantity underneath the extra sponsor subscription, which are actually held as treasury shares by the Firm) convert into Public Shares on the buying and selling day following the consummation of the Enterprise Mixture. 2,291,667 Founder Shares convert into Public Shares  if, submit consummation of the Enterprise Mixture, the closing value of the Public Shares for any 10 buying and selling days inside a 30 buying and selling day interval exceeds €12.00, and a pair of,291,666 Founder Shares convert into Public Shares if, submit consummation of the Enterprise Mixture, the closing value of the Public Shares for any 10 buying and selling days inside a 30 buying and selling day interval exceeds €14.00 (the “Promote Schedule”). The Founder Warrants have considerably the identical phrases because the Class A warrants to subscribe for one Public Share, ISIN LU2290524383 (the “Public Warrants”), together with the identical acknowledged train value.

Wanting on the chart, we are able to see that the shares by no means even acquired near the hurdle and I suppose that’s why the corporate now has loads of treasury shares:

Htg Chart

Really, 36,6% of the preliminary SPAC buyers wished their a refund which was then celebrated as a hit by the initiators. So as a substitute of 350 mn, they solely raised 250, leaving them quick 100 mn.

Valuation

Within the authentic SPAC presentation, this slide was offered to “anchor” HTG’s valuation, humbly evaluating HTG with AirBNB; Reserving and Shopify (!!!). I suppose solely the very astute observer sees the small “trick” they used: They omitted 2021 within the development fee I ponder why ?

HTG comps

One other fairly embarrassing mistake is labeling the 4th column EV/Income as it’s fairly clearly Income/EV. Additionally they added a chart for “monetary steerage” which seems to be as such:

HTG financial guidance

Anyway, in line with the corporate web site, HTG has 127 mn shares excellent, thereof 8,1% appear to be “Treasury shares”. From the SPAC IPO, the acquired 250 mn EUR money and I assume that ~200 could be assumed “free” for 2022.

So this implies Enterprise worth is (127*0,92*6,50)-200 ~ 550 mn EUR on the time of writing, ignoring the warrants.

Based mostly on trailing revenues, one is getting 85-90 mn in 2021 revenues. Now the massive query is clearly how briskly can they develop and what margins can they obtain.

Personally, I do assume the envisaged 50% development p.a. and 35% goal EBITDA margin shouldn’t be practical. 35% is the EBITDA margin that Reserving.com realized pre pandemic and let’s be sincere: HTG isn’t any Reserving.  As I discussed in my AIRBnB submit, even AIRBnB isn’t any Reserving both. For my part, reaching 20% EBITDA is already a stretch.

Assuming that they will improve their revenues to 200 mn in 5 years, this might imply 40 mn EV/EBITDA in 2026. This once more would imply that HTG is buying and selling at round 14x 2026 EV/EBITDA which to me seems to be wealthy and a big premium to Reserving and Expedia, which commerce on the identical ranges primarily based on 2022 earnings.

My intestine feeling says that I might wish to pay a max of 7-10 occasions that quantity to make it a protracted funding.which might imply that my “truthful” worth could be at someplace between 3-4 EUR per share to totally mirror the dangers of the present transformation and the aggressive atmosphere.

Total, the bull case might be made like this:

The corporate is rising and rising take charges. The quantity raised by way of the SPAC will enable them to roll up smaller websites which will increase revenues and take charges. In the end, HTG might develop into a take-over goal for the larger guys (Reserving, Expedia) and could be offered at a premium.

The bear case might be seen as such:

HTG is present process a compelled Pivot as the unique Meta search mannequin is squeezed from all sides just like Trivago (Google, Reserving & Co). The enterprise in the meanwhile is sub-scale and had burned the 150 mn USD raised finish of 2018 shortly with out loads of extra development. They had been compelled to do a SPAC and it must be seen if 250 mn EUR is sufficient to obtain scale as competitors on this space is fierce, each for renters and landlords. In any case, the query is how scalable and worthwhile trip leases are in a “regular” atmosphere. So the chance is excessive that HTG will get “caught” alongside the best way and the massive guys simply want to attend so as to snatch the belongings cheaply.

Abstract:

At this stage I can summarize what could be noticed from the surface:

HomeToGo is an internet trip rental firm that’s at present present process a enterprise transformation from a Meta search engine ala Trivago to one thing extra comparable than AirBNB.

For the time being some KPIs look okay (take fee) however to this point the enterprise doesn’t appear to scale as development must be purchased with huge advert spending and the scalability of trip leases as such shouldn’t be but confirmed. As well as, competitors is fierce from large gamers but additionally loads of mid measurement gamers.

As talked about above, my truthful worth could be at round 3-4 EUR per share, so the shares nonetheless look costly regardless of the drop after the IPO/SPAC.

So HTG is clearly not the “worst Bumsbude” in my Wikifolio and inside the SPAC universe, it is likely to be even one of many barely higher ones. Nevertheless it doesn’t appear like a possible excessive flyer both.

Disclaimer: This isn’t funding recommendation however my private (and sometimes unqualified) opinion. PLEASE DO YOUR OWN RESEARCH !!!



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