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The Sharing Economy Trend

The investment opportunities in the sharing economy trend are still few, but there is one stock that looks great.

By Chloe Lutts

Editor of Dick Davis Investment Digest


Rent a Windmill in England

Cars, Bikes and Power Tools

A Direct Play on the Trend


On a trip to the U.K. earlier this year, my husband and I got to spend two nights in a converted windmill on an enormous rural estate outside Cambridge, England. And last year, we spent three nights on a houseboat anchored in one of Amsterdam’s canals, where we enjoyed watching ducks swim by at eye-level while we ate breakfast. We also became familiar with a large Grey Heron who liked to stand on top of nearby cars.
We rented both places through Airbnb, a website (and app) that connects ordinary people who want to rent out their houses, apartments or spare rooms with paying strangers. We originally started using Airbnb because the accommodations were often cheaper than hotels. But in the last few years the range of spaces on Airbnb has multiplied, and we now turn to the service as much for unique experiences as for the price. Right now on the site, you can reserve a Bedouin tent outside Jerusalem for $100 a night, a four-bedroom villa in Bali for $1,000 a night, or an earthen dome in Joshua Tree, California, for $65.

We’ve also been on the other side of the Airbnb transaction, renting out our Brooklyn apartment while we went on a three-week trip. Everything went well.

Airbnb was a fairly revolutionary idea when it was launched. I remember explaining its benefits as recently as two years ago. Now, my parents are staying in an Airbnb rental for part of their upcoming trip to Europe.

And the company’s model—connecting travelers to people who have spare rooms or apartments—is now being ported to other industries.

RelayRides lets car owners rent out their wheels by the hour or day. Spinlister offers the same service for bikes. Taskrabbit connects users with people willing to do odd jobs for them, like pick up groceries or assemble Ikea furniture. And a U.K. service called Streetlend lets users lend or rent items like paper shredders and step ladders.

Some observers are calling this trend “the sharing economy”—like Nick Kristof, who wrote a New York Times op-ed called “Welcome to the Sharing Economy” just last weekend. Another name is “Collaborative Consumption,” which is the term used in a book on the subject called “What’s Mine is Yours.” The book’s authors, Rachael Botsman and Roo Rogers, make a convincing case for the superiority of lending, sharing and renting resources. Here’s an excerpt from the book’s fourth chapter:

“If you are not an avid cyclist and own a bike, how often do you use it? Not often, is most likely. The same is true of power drills. If you are like most people, you may use a power drill somewhere between six and thirteen minutes in its entire lifetime. And yet supposedly half of all U.S. households have bought their own power drill. There are approximately 50 million drills in homes across America gathering dust. ... The unused potential of those 50 million drills when they are not in use is referred to as idling capacity.

“Even when you take a look around at your immediate surroundings, you’ll be amazed by the amount of waste that exists—not just in landfills but in the stuff we own but rarely use: the car that sits idle on average for 22 hours a day; the spare bedroom that is rarely used; the evening dress that awaits the right occasion; office space and equipment that are used for less than half the day; roads used only during peak times; extra belongings packed into storage units. In fact, in the United States, 80% of the items people own are used less than once a month.

“At the heart of Collaborative Consumption is the reckoning of how we can take this idling capacity and redistribute it elsewhere. Modern technology including online social networks and GPS-enabled hand-held devices offers a multitude of ways to solve this problem.”

Personally, I think this model is going to be most successful in areas where the cost of ownership is high. Renting a car for a few hours or a few days a year is a great value proposition, because buying a car is so expensive. But renting a cordless drill is a little less tempting, when for under $50, you can own a cordless drill that you can use any time.

Of course, the model works great for travelers, who aren’t interested in owning things in the location where they’re traveling. Beyond accommodations, I can see the model working well for traveler-oriented rentals like bikes or cell phones.

The investment opportunities in this trend are still few—most of the companies I mentioned above are tiny start ups. You could make some money renting your car or house on RelayRides or Airbnb. But there is one public company that’s a direct play on the trend—and the stock looks great too.

The company is HomeAway (AWAY), which runs websites that lets owners rent out their second homes (mostly). So it’s like Airbnb, but geared toward vacation rentals in popular destinations like Orlando and Vail.

My father, Tim Lutts, mentioned the stock in yesterday’s Cabot Wealth Advisory as one of his “Best Revolutionary Stocks.” It’s revolutionary because it’s a leader in the new sharing economy, and he likes it because it’s growing fast and is mostly unknown to investors.

AWAY is a recommendation of The Complete Investor Editor Stephen Leeb, and we picked up his recommendation of the stock in the April Investment Digest. Here’s why he likes the stock:

HomeAway (AWAY) operates the leading global Internet platform allowing users to search and book vacation rental homes and apartments directly with the owners. ... Today, HomeAway boasts more than 720,000 listings in 165 countries. Listings have grown by more than 37% a year over the last five years and are now hosted on 32 websites in 16 languages.

“Despite its rapid growth, HomeAway has still tapped into only a small slice of a highly fragmented $85 billion market. The company estimates there are 21 million vacation homes in the U.S. and Europe—most of which are used fewer than 30 days out of the year. HomeAway provides owners with a simple way to monetize these assets. The company collects an annual fee, averaging close to $1,500, for each listing. The high level of recurring listings has translated into steady cash flow production. It’s also moving to offer a pay-per-booking option, which should appeal to both professional property managers and individual owners and help to further drive revenue and additional listings.

“HomeAway isn’t the only company serving the home rental market, but it is by far the biggest. Trading at 38 times projected 2013 profits, the shares aren’t cheap. But with earnings likely to rise at 30% a year over the next five years, the premium price tag becomes more palatable. And while we like HomeAway on its own merits, we also see it as a potential takeover candidate by the likes of, Google, Microsoft, or eBay. HomeAway is a new buy up to $32.”—Stephen Leeb, Ph. D., The Complete Investor,, April 2013

Four months later, AWAY is still trading in its range between 30 and 34. The stock looks healthy, but needs to break out above 34 and resume its uptrend to show strength. The company reports earnings Thursday, which could provide the necessary catalyst. If the earnings are well-received, you could consider buying on a breakout toward 35.

Wishing you success in your investing and beyond,

Chloe Lutts

Editor of Dick Davis Digests


Chloe Lutts Jensen is the third generation of the Lutts family to join the family business. Prior to joining Cabot, Chloe worked as a financial reporter covering fixed income markets at Debtwire, a division of the Financial Times, and at Institutional Investor. At Cabot, she is a contributor to Cabot Wealth Daily.