Interhome Acquisition And Eight Market Expansion Will Unlock Opportunity

Key Takeaways

• HomeToGo's strategic expansion into new markets and increased emphasis on direct bookings aim to enhance revenue and reduce marketing costs, boosting net margins.
  
• Investments in AI technology and strategic acquisitions are expected to drive revenue growth and strengthen EBITDA margins by improving operational efficiencies and brand recognition.
  
• HomeToGo's market expansion and branding strategy may raise costs and risks, potentially impacting margins, earnings, and long-term growth amid technological and financial challenges.

Catalysts

Operates a marketplace for vacation rentals that connects users searching for a place to stay in Luxembourg and internationally.

• HomeToGo's expansion into eight new markets, alongside the growth of its Marketplace and PRO segments, is expected to unlock new revenue opportunities and bolster IFRS revenue, reflecting a strategy to capture a broader global audience.
  
• Developments in AI technology, including AI Sunny and partnerships with apps like Komoot, aim to enhance customer experience and reduce operational costs, potentially leading to higher net margins.
  
• The focus on increasing direct bookings and repeat customers, which grew by 33% year-over-year, is likely to reduce reliance on paid marketing and improve net margins through better marketing efficiency.
  
• The acquisition and integration of Interhome are projected to significantly increase HomeToGo PRO's revenue share to 55%, driving revenue growth and contributing to a stronger adjusted EBITDA margin.
  
• The strategic focus on AI-driven search engine visibility and partnerships, along with brand-enhancing sponsorships like the one with FC Union Berlin, is expected to drive organic traffic, decrease marketing costs, and elevate brand recognition, potentially improving net margins and earnings.

HomeToGo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming HomeToGo's revenue will grow by 25.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -14.5% today to 4.2% in 3 years time.
• Analysts expect earnings to reach €17.4 million (and earnings per share of €0.1) by about April 2028, up from €-30.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €21.1 million in earnings, and the most bearish expecting €13.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 60.9x on those 2028 earnings, up from -9.6x today. This future PE is greater than the current PE for the DE Hospitality industry at 11.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.96%, as per the Simply Wall St company report.

HomeToGo Future Earnings Per Share Growth

Risks

• HomeToGo's expansion into new markets, while offering growth opportunities, also involves significant execution risk and increased costs which could affect net margins.
  
• The marketing strategy shift toward branding, including costly sponsorships, might not deliver direct returns quickly, potentially impacting short-term earnings.
  
• Despite technological advancements and AI integration, the reliance on AI-powered services may lead to inconsistent user experiences and potential dissatisfaction, affecting customer retention and future revenue growth.
  
• The integration of Interhome could face unforeseen challenges or costs, such as regulatory delays or operational disruptions, which may impede the expected benefits and impact overall profitability.
  
• The continuing negative free cash flow, despite improvements, presents a risk to financial stability, potentially limiting resources for further investment and impacting long-term revenue growth.

Valuation

• The analysts have a consensus price target of €4.2 for HomeToGo based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €5.2, and the most bearish reporting a price target of just €3.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €418.0 million, earnings will come to €17.4 million, and it would be trading on a PE ratio of 60.9x, assuming you use a discount rate of 6.0%.
• Given the current share price of €1.7, the analyst price target of €4.2 is 59.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.