Analysis: Vacasa Has a Growth Story Neatly Tailored to Wall Street Sensibilities

Vacasa recorded a breakout second quarter, and vowed to increase its ranks of homes by 30 percent in 2022, mostly through good old-fashioned sales calls, as opposed to expensive mergers and acquisitions.

That hits a sweet spot for a Wall Street that wants to see scale — and profits along with it. Vacasa went public in a special purpose acquisition company merger in December when Wall Street tired of such public debuts where the red ink ran amok.

The property management company beat its own guidance on revenue and earnings for the quarter, and forecast that it would reach profitability, on an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) basis, in 2023.

Wall Street applauded Vacasa’s second quarter financials and outlook, and its shares were up more than 31 percent to roughly $4.00 Thursday morning, a day after the earnings release.

Incidentally, Vacasa reversed a $20 million net loss in the second quarter of 2021, and turned it into net income of $9.94 million in the second quarter of 2022 because its share price was in the doldrums during the quarter. The company recorded a $45 million net income benefit in the second quarter because of a decline in the fair value of an earnout to merger partner TPG based on the price of Vacasa’s Class G common stock.

Disciplined Growth in 2022 That’s Much Slower Than 2021

A key element of Vacasa’s go-to-market messaging is that it plans to grow in a disciplined manner. In speaking of its projected 30 percent growth in homes, which would take it to 48,100 vacation rentals under management in more than 400 destinations in 2022, Vacasa emphasized in its second quarter earnings materials Thursday that the “individual approach,” namely direct sales efforts, were responsible for the majority of signups so far this year.

In addition to salespeople signing contracts with individual homeowners to have Vacasa manage their properties, Vacasa also expands its number of homes through acquisitions of smaller, regional property management companies.

But in 2021, Vacasa boosted the number of its homes at double the pace of what it projects for 2022, 60 percent growth in 2021 versus a planned 30 percent in 2022.

In 2021, in addition to the smaller acquisitions of property managers who may be looking to get out of the business and retire, for example, Vacasa acquired rival TurnKey vacation rentals for $619 million. TurnKey added around 6,000 properties to Vacasa’s ranks.

Vacasa, though, so far this year has spent just a fraction of that $619 million for mergers and acquisitions. During the first half of 2022, according to a financial filing, Vacasa completed the acquisitions of 23 local property management companies — 16 occurred in the second quarter — and spent $93 million on these deals.

Emphasis on Salespeople and Salesforce Software to Add Properties

In 2022, Vacasa pointedly said that most of its home growth will come from its salespeople knocking on doors or, as Skift has come to learn, getting leads from the Salesforce customer relationship management software it installed this year to find prospects.

Vacasa added around 200 salespeople so far this year.

One Vacas sales exec, who declined to be identified, told Skift that Vacasa’s Salesforce integration earlier this year was a nightmare, with salespeople getting inundated with outdated or otherwise irrelevant sales prospects.

Vacasa hinted at the problems with its Salesforce software integration — or at least at the need to make improvements — in its second quarter shareholder letter, and its emphasis on “productivity improvements” likely means additional salespeople may get fired.

“We also expect the sales force to see productivity improvements in the quarters ahead as sales representatives become more tenured, our new leaders implement further training and process improvements, and we gain actionable, data-driven insights from our recent transition to an enterprise-grade customer relationship management solution,” the shareholder letter said.

During Vacasa’s earnings call with analysts Thursday, CEO Matt Roberts inferred that some job eliminations may occur in the name of productivity although the size of the salesforce would be stable.

“We added net double-digit sales reps in the quarter,” Roberts told analysts. “So the real focus for us in the back half of the year is maintaining the size of that. Of course, we’ll continue to be adding sales reps, but between back filling performance management, et cetera, on the net basis, we’re roughly staying in this size.”

Profitability in 2023?

Vacasa generated $9.94 million in net income in the second quarter on revenue of $310 million, a 31 percent year over year increase.

The property management company, the largest in North America, raised its 2022 revenue and adjusted EBITDA guidance, and projected adjusted earnings profitability in 2023.

BTIG analyst Jake Fuller, however, said in a research note Wednesday that Vacasa could be profitable as soon as this year.

“Vacasa now expects a full-year EBITDA loss of $0-$7 million and we see a reasonable probability of it showing a profit on ADR (average daily rate) strength,” Fuller wrote. “No doubt that the march to profitability has gotten a boost by ADR inflation, but getting there is an important milestone.”

Vacasa Is Not Sonder, Vacasa Cryptically Points Out

Vacasa emphasized during its second quarter call that its business model is very different than Sonder’s — although it didn’t mention Sonder by name — and pointed out that it doesn’t have long-term leases with properties. Long-term lease obligations were a problem for Sonder and others, especially during the initial phase of the pandemic, when travel demand died.

“In terms of the business model, specifically, one, we don’t commit capital in order to earn revenue,” said Vacasa Chief Financial Officer Jaime Cohen. “Our business model is to earn a commission on the rental revenue we generate for our owners and collect fees from guests. So our model is not to lease the homes from owners.” 

When it comes to adding homes to manage and offer to travelers, Cohen saw several silver linings in the event of an economic downturn.

“We know 40 percent of travelers say they choose vacation rentals over hotels because of the value, not to mention that they can dine-in instead of dine-out, share homes with friends and really make it a bit more cost-effective,” Cohen said. “From a homeowner acquisition perspective, Matt touched on this a little bit, but potentially gets a little bit easier as homeowners might need us a little bit more, free up a bit more availability or you might see some churn reduction just given homeowners need income and there might be fewer sales of real estate.”

It would potentially bolster Vacasa’s expansion of homes under management — and help deal-making for salespeople instead of the more expensive tack of large mergers and acquisitions.

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