VCSA - Vacasa: Economic Headwinds Persist

2023-10-16 16:31:07 ET

Summary

• Vacasa, Inc., a vacation rental management platform, has seen its stock decline dramatically since its IPO in 2021 and is currently trading just above $9 a share.
• The company has cut costs and brought in new management. Vacasa is also sitting on net cash higher than its current market capitalization.
• Is Vacasa, Inc. enough of a bargain despite mounting economic headwinds?  An analysis follows in the paragraphs below.

No man needs a vacation so much as the man who has just had one .”? Elbert Hubbard.

I penned my first article on "Busted IPO" Vacasa, Inc. ( VCSA ) in early February in the piece " Too Little, Too Late ." Not surprisingly, the stock has continued to decline since that original article. Since I posted a piece on market leader Airbnb ( ABNB ) earlier this month, it seemed to a good time to revisit Vacasa to see if lower entry points have put the stock in the " buy zone" yet. An updated analyst follows below.

Company Overview:

This small cap concern operates from its headquarters of Portland, OR. The company operates vacation a rental management platform in North America, Belize, and Costa Rica. One can book its properties on Vacasa.com and the Vacasa Guest App. After initiating a reverse 20 to 1 split to regain compliance for listing in September, the stock currently trades just above nine bucks a share and sports an approximate market capitalization of $230 million.

Second Quarter Results:

Vacasa reported second quarter numbers on August 8th, prior to the announced reverse stock split. The company had a GAAP loss of one cent a share as revenues fell by nearly two percent on a year-over-year basis to $304.6 million. Adjusted EBITDA was $16 million for the second quarter compared to a $2 million loss in the same period last year. The company believes adjusted EBITDA will be slightly positive in FY2023. Vacasa's cost of revenue was 47% of revenue in the second quarter compared to 49% in 2Q2022. The company laid off approximately 17% of its workforce (roughly 1,300 positions) early this year and brought in a new CFO in May as increasingly focused to controlling/reducing costs as the environment for short term rentals has deteriorated from the hay days of 2021 and 2022. The company also brought in a new CEO in the summer of 2022.

One of the main challenges in the short-term or vacation rental space is that revenue per night is coming down across the industry. Nights purchased at Vacasa grew three percent year-over-year to 1.7 million in the second quarter. However, the gross booking value per night sold was $368 in the quarter, down 10% from the same period a year ago. Management now expects revenues to decline in the high single digits for the 2023 fiscal year.

Analyst Commentary & Balance Sheet:

The analyst community is not currently optimistic about Vacasa's near-term prospects. Since second quarter results came out, four analyst firms including KeyBanc and BTIG have reissued Hold/Neutral while Needham ($25 price target), and JMP Securities has maintained Buy ratings.

A couple of beneficial owners have dumped several million dollars' worth of shares on the market so far in 2023, collectively. A few corporate insiders have sold very small amounts of equity, totaling some $25,000 so far this year.

According to the 10-Q that was filed after second quarter results, Vacasa has $280 million in cash and marketable securities on its balance sheet as well as $320 million in restricted cash and no long-term debt. Some eight percent of the stock's outstanding float is currently held short.

Verdict:

The company lost $4.80 a share on $1.19 billion worth of revenue in FY2022. The current analyst firm consensus has Vacasa having net losses of over $5.50 a share as revenues slide to $1.1 billion in FY2023. They do see sales rebounding by five percent in FY2023 and losses dropping to approximately $4.25 a share. The EPS estimates have not been adjusted for the reverse split, so the company lost 24 cents a share in FY2022 and is projected to have losses of around 28 cents a share in FY2023 and 21 cents a share in FY2024 taken that into consideration.

The best thing Vacasa has going for it right now is its strong balance sheet. The company's net cash is currently significantly above the stock's market capitalization. As I noted in my recent piece on Airbnb, " it seems the wrong time in the economic cycle to buy this sector " as vacation budgets are one of the first things families slash when the country goes into a recession. The short-term rental business is also under regulatory attack in major cities like New York City which recently instituted new rules on vacation homeowners that greatly reduced the amount homes and apartments available for short term rentals.

Given this, Vacasa, Inc. stock could continue to decline or remain " dead money" despite the huge slug of cash on its balance sheet, until economic conditions improve.

Relaxing brings weakness, when done by a muscle; but brings strength, when done by a person .”? Mokokoma Mokhonoana.

For further details see: