Why is Vacasa struggling? To put it bluntly, their operations suck. Pull up any market they operate in and their review scores will be lower than average for that geography. Why do their operations suck? Well, they manage 40,000+ properties nationwide. That's 40,000 unique homes each with their own unique set of quirks and challenges. Managing this many homes, while also managing almost as many owners and hundreds of thousands of guests is a herculean task. Arguably an impossible one. No matter how much technology you are able to incorporate into your operations, this is still a business that requires a level of human touch to excel. This is not just a property management business, it's also a hospitality business. I'm sure Vacasa's founders/management team knew that scaling operations was going to be brutally difficult, but when the company was founded in 2009 I bet they were projecting that there would be massive competitive advantages that would come with scale, such as: - More absolute dollars for tech investments - Better pricing data - Direct booking/branding They probably thought that their scale would make it impossible for local property managers to compete with them. But what actually happened in the 2010s is Airbnb exploded in popularity at the same time that VC money abounded, and an extremely competitive, well-funded SAAS ecosystem sprung up catering to the short-term rental industry. Now every mom-and-pop vacation rental owner and property manager can have a tech stack that is equally as good as Vacasa for less than $500/month. Vacasa is saddled with all the headaches that come with massive scale without the benefits. In fact, they are at a competitive disadvantage because small time property managers and self-managing owners are able to provide better service. They have the bandwidth to deliver the little human touch that makes a guest feel taken care of that Vacasa cannot. And this brings us back to the crux of the issue for Vacasa in our current moment. In Q4 revenue was down 19% as pricing was down 14% and the number of homes they managed was down 5%. Management blamed an increase in new supply coming online in their markets for the decrease in pricing. Of course new supply is bad for existing owners, but shouldn't that be good for Vacasa? After all, they just shifted their strategy last year from buying small property management shops to targeting individual owners, so they should be perfectly positioned to onboard all this new supply and grow the number of homes under management. Yet, the number of homes they manage was down 5%. So why are they not winning new properties? That takes us back to the beginning - because their operations suck. After 15 years of operation it should now be apparent to Vacasa that the disadvantages to scale outweigh the advantages. They are not winning new business for three main reasons: 1) It's easier than ever to self manage. Even compared to when I started in the industry in 2019, it's remarkable how far the industry software has come, from PMSs to pricing to software like Breezeway, guidebooks, direct bookings, etc. For a couple hundred bucks a month I have a tech stack that is on par with Vacasa. 2) In the same vein, it's easier than ever to spin up a small property manager. Any scale advantages that Vacasa might have had has been mitigated by SAAS providers who can make those larger investments for the smaller PMs. 3) When times get tougher, Vacasa's 25% property management fee gets tougher for a homeowner to swallow. In many cases they'll take over and self-manage to ensure that their vacation home remains profitable. So in summary, Vacasa is in a tough place and I don't see how they can structurally improve their position. I usually try to be as optimistic as possible to see what the market might be missing, but in this case I don't see. Would love to chat with someone optimistic about Vacasa's future - if that's you, please reach out. If you made it this far, bravo (also, it's Friday - go do something fun and get off Twitter 😀). $VCSA