September 7, 2021 – On today’s podcast we welcome special guest, Vacasa CEO Matt Roberts. Vacasa is the leading vacation rental management platform in North America and it just announced a $3.75 billion going public transaction.

On the show, Matt discusses:

  • Vacasa’s business model and how it differs from Airbnb
  • Its value proposition and why customers would choose Vacasa
  • Insights into Vacasa’s merger with TPG Pace Solutions
  • The investment case for the stock
  • And more

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Transcript: 

Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.

 

Julian Klymochko: Pleased to welcome the Vacasa CEO, Matt Roberts, to the show. And Matt, I was going through the investor presentation. And man, do I need a vacation, some of your properties, especially the ones in Florida that I saw just look absolutely fantastic. I’m sure they be great to stay in, but unfortunately trapped in the office these days, how about we kick off the podcast, talking about you and your background. I went through a bit of your profile. Notice you started at PWC Audit, [Inaudible 00:00:30], but then you moved up to the CFO position, E-Loan, then CFO at OpenTable. And you progressed at that company, CEO chairman, a successful exit there. Now CEO at the Vacasa. How did you make that transition? And do you want to just talk about your career in general? What brought you to where you’re at today?

Matt Roberts: Sure, I haven’t heard the [Inaudible 00:00:56] thing in a long time. So, the most recent part of my career is obviously what I’m doing today, which is running Vacasa. I was on the board. I joined Vacasa board in 2018 and when we were expanding a search for a new CEO, then basically I decided I’ll come in for a period of time on an interim basis. And then the global health pandemic hit. That plan changed pretty dramatically and I became sort of permanent CEO during the pandemic. Prior to that, OpenTable, had a great time. What an awesome company to run. Very much of a beloved brand, adding a lot of value to our customers and to the diners. And I think one of the things that’s so appealing about Vacasa for me in terms of initially joining the board and then subsequently decided to, you know, to step into the CEO role is how many parallels I saw in terms of when you focus on a local supply problem to solve, you’re really able to create a very valuable business that has very, you know, great growth characteristics and a lot of defensibilities to it. So that that’s kind of like a little bit of a roll forward of my career to, today.

Julian Klymochko: Sounds like a bit of a seamless transition despite being initially on an interim basis, but going from OpenTable CEO to now CEO Vacasa. I was wondering if you could touch on and describe the business in general. I note that you describe it as the leading vacation rental management platform in North America, can you talk to us about how it makes money?

Matt Roberts: Sure, so what we do is, is have a different focus than what maybe some of the brands that you’re more familiar with, which are the larger OTAs, who are very much focused on the demand side of the equation, marketing to generate guest’s demand. We’re very much identifying the pain point for the overall ecosystem is in the supply. There’re not enough nights for people to rent. There’s a lot of people that want to rent. So, we set out to build a platform that’s technology foundation, but in enables these services that led a homeowner that is wanting to decide to start to rent. We do everything that’s necessary. So literally a homeowner can just hand us the keys, book the nights they want to use for personal use and we write them a check. And our solution is aimed towards three different people, really people that have purchased a home that had never rented before. over twenty percent of our new sales are people never rented before because we just make it so much easier for them to start renting that they’re new to the whole system.

The other is somebody that used a smaller property manager or they did it themselves. So those are the three different ways. And in each case, we just fundamentally make more money for homeowners. I mean, I think our core value proposition is to make homeowners more money. And we share in that. So, you know. Our percentage that we get as a commission on the rent that we generate is roughly in that twenty-five to thirty percent, right? And that’s what we get paid. So, there’s a complete alignment of interest. We don’t make money unless they make money.

Michael Kesslering: So, would it be fair to first, I guess, when you’re looking at your business model versus say, Airbnb, would it be fair to say that they’re more of a demand aggregator, whereas you’re really focused on aggregating the supply and then as well, you mentioned making more for homeowners. Could you drill down, make work for the homeowner under your platform versus say a competitor platform? 

Matt Roberts: Absolutely, so the first thing is I would agree with your assessment that we’re much more focused on the supply aggregation and we built a technology platform that allows that to happen. So, at our core, we’re a technology company because frankly, none of this would make any kind of sense economically, if we didn’t grounded in a strong, proprietary technology platform, we just wouldn’t be able to get the unit economics or the transaction economics to pencil out because we’ve built that platform.

And it has great scale advantage as you grow. And for example, add density in a market, the contribution margin per market expands, gets easier to sell in the market. It gets lower to cost to service it. So, it all works. So yes, we’re focused on the supply side as compared to predominantly as compared to the larger OTAs that are our partners from a distribution perspective, but interesting to note, thirty five percent of this nights that we sell are from about Vacasa directly. So, I think that surprises people because the brand isn’t from a consumer perspective as well-known as clearly as some of the larger OTAs. That is grown considerably, that thirty five percent used to be eighteen percent in 2018, part of the growth is we just started focusing on it, frankly. There was always an understanding that supply was the key and our predominant value proposition was aggregating the supply.

So, we focused all of our technology development dollars and efforts against building the best-in-class platform to aggregate that supply. But about eighteen months ago, we decided to start focusing on the demand side of the equation too. And wallah, you know. we go from eighteen percent up to already thirty five percent direct, but our number one objective is to make homeowners the most amount of money. And you do that by distributing that availability everywhere, not only on our site, but also on our distribution partners sites as well. So, we’re actually very important partners to our distribution channels. We’re actually significant amount of the number of listings in our top markets. So about forty four percent of Airbnb listings in Destin Florida are about Vacasa. About a third is Steamboat Colorado for Vrbo, Vacasa units. But I think the more interesting thing from my perspective is that we create higher performing inventory.

And we do that by basically, our deal with optimization is very much akin to what airlines do. So that is so much different than the industry historically, because the industry historically has been either you do it yourself. So, you don’t have this sophisticated tools and technology, or you work with the local property manager who also has not invested the technology dollars to build the AI engine and the machine learning that we do. We post twelve million updates to our algorithm a day.

Julian Klymochko: Wow. 

Matt Roberts: We simultaneously A/B test on every single channel, including our own in real time to eke out basis points improvement in conversion. So, this is just a whole different level of yield optimization and the yield management then what exists in the industry. And as a result, we make our homeowners more money.

Julian Klymochko: That’s a really simple value proposition in terms of making home owners more money. And I definitely understand the economies of scale. It’s certainly a local property manager wouldn’t be able to have twelve million updates per day. And in the travel business, went through a super tough time with respect to COVID. Many in that sector saw their businesses, you know. Dive bomb in terms of customer demand. But looking through Vacasa historical financial statements or the historical financial results in terms of revenue, and it didn’t look like you guys skipped a beat in 2020, how was it going through COVID? How did it affect the business?

Matt Roberts: Well, we definitely missed a beat because some of our markets closed entirely from a compliance perspective and a regulatory perspective. And also, we were not able to add as many properties in 2020 as we would’ve liked to do because it was just pretty much impossible to be out there selling during the heart of the pandemic. What is interesting is as you noted, we’re basically, we’re probably flat 2020 over 2019. I’m not sure of another travel company that can say that. So, in relative terms, for sure, but you know. When we’re looking at a percent CAGR for annual growth rate, you know. We aspired much better than flat, right? So, but the pandemic was interesting on two levels in terms of managing through it, it was incredibly challenging.

As you can imagine, there was both the economic and also just the, you know. The impact on people’s lives. People were going through a lot of disruption on a personal level, you know. Kids staying home, having to figure out caregiving situations, being stuck at home. And there was no end in sight. And that was the thing that people in hindsight now we think, oh, there’s the vaccine. And everything’s sort of is going to turn out okay. But at the moment we were talking about still eight to ten years for vaccine development and no end in sight. The unknown was probably the most difficult thing to deal with for people and for me personally, as a leader. How do you communicate that in a way that helps people, you know, feel like it’s all going to be okay?

The interesting thing though Julian, that I think is that equally as challenging was the ramp back up because it was a light switch, every market as they opened, they got booked. And we went from having people on furlough to clamoring to get everybody back and actually even add more people than we had before in time disservice 4th of July weekend. And that was its own, you know. Much better problem to have, but it was a challenge nonetheless. I think that we did take the opportunity to rethink elements of the business that could be more efficient, more effective just like you should in any situation like this, try to figure out ways to get better. And I hope that we did that. I know that this year, it sure feels like we were benefiting from some of those analytics that we applied to the business during the heart of the network.

Michael Kesslering: And I can just imagine, even when you talked about the ramp back up, you know. Dynamic pricing to be able to price things correctly, all historical models would be kind of thrown out. But moving forward as well, you are adding a few new things to the platforms such as a loyalty program. You’re adding customized guides. Can you talk a little bit about the challenges and opportunity for implementing these initiatives and specifically, I guess as well, I’d be very curious on the loyalty side, how you foresee that affecting some of your conversion is that obviously seems like something that could really help out in that respect? 

Matt Roberts: Yeah, our predominant focus on for the business in general is really continuing to scale the platform, meaning ad properties. And then more importantly, make sure that those properties are set up for success because we don’t sell properties, we sell nights. So, we’re trying to get the most available nights per property and then sell those through. So, all of our real effort in prioritization from a technology perspective, which is usually where you can find what people value the most is where do they spend their tech dollars is all around optimizing, growing and optimizing our base of properties and availability. Elements that can deal with the guest experience and then the homeowner experience first sort of adjacencies are also growth opportunities for us, but the main focus is going to continue to be about, you know. How do we make the most revenue possible for homeowners and service them and the guests to the best of our ability? I think some of the loyalty programs and ideas around that are really meant to acknowledge that we have other opportunities to grow the business as we move forward, because we do have the relationship with the guests and we are supporting the end-to-end experience.

I mean, one of the things that was different about OpenTable is as much as we solved a really interesting pain point, which is picking up the phone and having to dial and get a reservation. And we made that seamless and easy and got a lot of love for that. We weren’t the ones that greeted you when you walked into the restaurant, we weren’t the ones that ensured that the hospitality that you received was world-class. I mean, we think our restaurant partners did a great job, but we didn’t control that. Vacasa is different, we actually have the opportunity to really create a hospitality brand in the short-term vacation rental category, which is characterized by a wide variety of property types, which is its appeal, right? People don’t, you know. They don’t want it to be all cookie cutter, but they want a consistent experience throughout. And so that’s where we come in and that’s where we’re applying technology. We can do things like have a guest app where you can do late checkout, early check in. If there’s anything that you need, just message us within the app, 24/7, that’s very hotel like in a diverse property type ecosystem.

Julian Klymochko: And you guys seem super busy these days if dealing with the great reopening wasn’t enough work for you. You guys are going public too. So, work on top of work. Recently announced a going public through a merger what’s SPAC TPG Pace Solutions, three point seven five-billion-dollar deal. What do you hope to accomplish in this going public transaction? 

Matt Roberts: Well, I think, as you’d imagine. Any capital raise is really focused on making sure that we have the adequate amount of capital to fund our ambitions for the company. I mean, we’re the less than one percent penetrated against some pretty massive opportunity, market opportunity. So, the main dollars will be spent against, we’re going to more than triple our research and development dollars, our technology spend which is just going to allow even more innovation to surface for our guests and for our homeowners. And we’re going to have more capital that we can deploy against our portfolio strategy, which is when we acquire smaller property managers and also hire more salespeople and spend more on marketing to acquire more properties. So that’s, it’s really a growth situation where we were so early days that this capital will just help us to, you know. In many cases accelerate our growth.

Julian Klymochko: Oh, I find it fascinating to hear behind the scenes details and insights into the deal process. So, I was wondering, how did this deal come about? Are you able to give us any insights into the background?

Matt Roberts: It’s pretty straightforward. We we’ve reached a scale as a business that we are able to be a public company. I think you need to have, in my opinion, and based on my experience running public companies, you need to have a certain scale growth rate and maturity of both the operation team themselves, as well as the systems that support running the business. And we were able to, you know. Get all of those things done and check those boxes. And then it’s a matter of, you know. What’s the most effective way to approach the capital markets and bring that money onto the balance sheet. We could clearly have just done a traditional IPO and ultimately at the end of the day, you end up at the same end place, which you have a ticker symbol that’s traded on one of the exchanges.

The reason that we’re really excited about being able to have done this SPAC process with TPG, Pace is, one structurally there SPAC for example, it doesn’t have any warrants. It’s very issuer friendly. In many ways, if you look at what the offering construct is, it looks very much like a traditional IPO. There are no secondary sales, nobody’s selling, there’s all primary shares, it’s a relatively low flow, relative to the market cap post deal. So why do this way versus a traditional IPO? The partner, TPG Pace. This is, I think their seventh SPAC. They’re very, very, very good partners for us because of their domain expertise in travel. For example, Karl Peterson is co-founder of Hotwire, sits on, you know. Many, many travel related company boards and they have deep marketplace, technology marketplace experience as well. So, what I have already seen the value in is that relationship and the experience that they bring to the business more than just raising the capital. And in the end, the capital is going to be raised pretty similarly to how we would have done it for a traditional IPO anyway,

Julian Klymochko: And from TPGs perspective, they noted the investment case for Vacasa. They highlighted a number of characteristics, including large and fragmented total addressable market, secular tailwinds, competitive moat, and attractive unit economics. From an investor’s perspective Matt, can you highlight some things above and beyond TPGs broad investment case? Why should investors pay attention to Vacasa?

Matt Roberts: Well, I think if you pull back the lens a little bit here and just understands what we’re category we’re playing in. We’re operating in vacation rentals which is the hottest category in travel period. It’s growing at 2X, the rate of traditional accommodations. And it’s not slowing down, this isn’t a COVID thing. I think people have this sense of, oh, well, that’s just COVID and everybody wants to do vacation rentals, now they’ll go back. The reality is this started back, you know. Over a decade ago, there was only a ten percent preference for vacation rentals back in 2010, it grew to thirty percent by the 2019. And it’s accelerated certainly during the pandemic, roughly nineteen percent of the people over the last eighteen months, it’s the first time spending any time in vacation rentals. So, it’s a whole new cohort of users got introduced to the value of vacation rentals and of those, fifty two percent say they now prefer vacation rentals.

So, that’s the big picture. The big picture is the trends are our friend, right? There’s more adoption by guests to this category. And importantly, for us, more homeowners are deciding to rent their second homes. Now that’s actually gone up by more than 2X as well. It’s up to sixty percent preference or indication of interest to renting their homes. It makes sense, think about? It’s not weird anymore to share stuff, right? What for Uber, you know. You get in other people’s cars now and, you know. Back in 2010, it wasn’t as normal to do those types of things. So, the sharing economy has really been a trend that has helped us unlock more supply in the market. So, I think the main takeaway from an investor’s perspective is, is the category large and growing? Yes, is this a differentiated offering within that category? Absolutely. We are the only scaled supply centered person, like a company, that’s it, it’s us. There’re other smaller companies, some regional companies, but with a technology focus and technology platform and add scale, it’s Vacasa. And so, if you believe in this category and you believe that supply is going to be the most critical factor to support the growth in the business, then Vacasa offers a very unique opportunity to participate in these trends.

Julian Klymochko: So, say some of our listeners have a vacation house that they’re not using as much as they’d like to, how can they start making money through Vacasa platform?

Matt Roberts: Well hopefully they will have heard from us, numerous times by our marketing team. But the easiest thing to do is, you know. We walk you through the whole process. I mean, the team, there’s an onboarding team. The main value proposition that we have is, we just take this on for you. So, we’d take pictures of the properties. We make sure there’s virtual 3d tours. We write all the copy for you. We do all the pricing, the marketing, and then all of the servicing necessary to do it. So, you literally just need to decide how many nights you want to use for your personal use and then collect a check.

Julian Klymochko: All right. Prior to wrapping things up here, Matt, just have one last question, a fun question in two parts. What is your favorite rental property on the platform? And then number two, any recommendations for us if we’re looking to take a vacation?

Matt Roberts: Yeah, so I can’t really answer the first one because it’s like when my older son asked me if he’s my favorite, like I say, you’re tired. You’re all my favorite. But we have amazing property, over thirty thousand properties on the platform right now. I’m kind of excited about is, is I think we mentioned a little bit, but we closed on the acquisition of TurnKey which was our second largest competitor. We closed on that in April and we’re going to be continuing to integrate through the balance of this year, but we’re adding some new markets like Key West which I think will be a fun, new addition and a new selection for people to visit. 

Julian Klymochko: All right, perfect. Well, there you have it. Key West, I could use a booking there in the near term, but I digress if investors are interested in checking out the stock, the TPG SPAC currently under the symbol TPGS and when the deal completes, I believe that’s expected in the fourth quarter. It will be trading under the symbol, VCSA. So, Matt wish you all the best of luck and exciting times ahead, for sure.

Matt Roberts: Thank you, guys. Really appreciate the time. 

Julian Klymochko: All right. Thanks. Take care. 

Matt Roberts: Thanks.

 

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

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