VCSA

Please note, on 12/7/21 TPG Pace Solutions Corp. (TPGS) merged with Vacasa, Inc. (VCSA) and assumed its company name and ticker. The content of this idea will make reference to the original SPAC.

Publicly traded companies mentioned herein: Airbnb Inc (ABNB), Angi Inc (ANGI), Booking Holdings Inc (BKNG), DoorDash Inc (DASH), Expedia Group Inc (EXPE), TPG Pace Solutions Corp (TPGS), Uber Technologies Inc (UBER), Zillow Group Inc (ZG)

Highlights

The presenter is bullish on the vacation rental platform Vacasa (TPG Pace Solutions Corp), which he described as the dominant player in an industry with a huge U.S. and global TAM opportunity. The company controls 30,000+ vacation rental homes in roughly 400 destinations, with gross bookings of $1.7B and $750MM of gross revenues this year. They are 3x - 4x larger than the second biggest player in their industry, and likely account for 30% of all Airbnb (ABNB) and 20% of all VRBO bookings in each major rentals market. Think of them as the dominant aggregator of supply to those channels. He describes the opportunity further as follows:

Similar to how Uber (UBER), Zillow (ZG), OpenTable (BKNG) and DoorDash (DASH) have helped solve supply/logistical issues in a key consumer market, Vacasa is doing that same thing in vacation rentals. They are entering a market and locking in a sizable share by offering an attractive proposition to all parties involved: the homeowner, the rental agent, and the OTA.

How it works: If you own a second home and want to rent it, the company proposes handling all the hassle of managing the rental completely while offering to generate, on average, 2x - 4x the after-tax rental income that the homeowner would generate on their own. The company accomplishes this by renting the property on average roughly 50% more often than the typical homeowner does on their own. Also, the company typically obtains higher rental rates attributable to an impressive, full-service stack they’ve built. This begins with the origination of the lease and extends to smart technology installed throughout the house, to seamless electronic check-in and check-out. The model aspires to deliver a hotel quality or better experience where the renter comes in and the entire system works flawlessly. If a property owner already rents through an independent rental agent, the company will tell that potential new client to expect 20% more income in Year 1 and an incremental 10% in Year 2. The company achieves a ~4x LTV to CAC on each incremental rental property added to the platform. As the company grows in a market, it also achieves economies of scale for itself on services like housekeeping and maintenance. 

The company is achieving scale by buying existing local property managers/rental agent practices in different key markets, which give the company immediate sizable share in a market versus obtaining a contract on rental properties one by one. No other company is attempting to roll up these property managers/rental agent practices in such a strategic way. Further, they are achieving 25%+ IRR on acquisitions given their tech stack. 

Vacasa also has its own direct listing platform (website/app)—a passive business segment that has 2x the margins of the rest of the business and is growing faster as well. 

There are several virtuous cycles within the business: TAM is huge; COVID impact on demand feels like it’s here to stay, and the relationship with Airbnb and VRBO appears strong. The OTAs like this company because it is responsible for delivering a steady supply of new properties with good reviews (typically 40% higher than the average review on Airbnb or VRBO), and accordingly view this as a higher quality revenue with a better, more consistent guest experience. 
We like management, and believe the CEO Matt Roberts (ex-OpenTable) has assembled a solid group of ex-marketplace executives around him from places like Angie’s List (ANGI). We are also comfortable with the board, and generally have had a good experience with TPG. Karl Peterson from Hotwire is on the board now and we see him adding value there

Regarding COVID/Delta variant, the company announced they are not seeing any impact in August. We view this as a somewhat sticky business with a lot of recurring revenue (repeat renters occupying the same properties). The caveat, of course, is that if the world shuts down again because of the pandemic, this company will be impacted to some degree.

Valuation is at about 7x gross profit or 3.5x 2022 revenues. Airbnb may be the most logical comp and that stock is trading at double (14x) its gross profit. TPG Pace Solutions is a pro forma $4.5B market capitalization company. Later this fall, we expect the company will have north of $400MM in cash. Gross margins are in the 50% range, which was the target in their models, along with a target of 20% EBITDA margins in 2023. We believe these targets are achievable as the company reduces SG&A and ops/technology spend from the 20% range down to 10% as the business matures.