Kayak (NASDAQ:KYAK), a leading travel search company, announced its Q2 2012 result on Wednesday, August 22. Having delayed its IPO for over 20 months, Kayak’s stock finally started trading on June 20 this year, with an initial listing price of $26. Posting a 36% y-o-y increase in its total revenues, we believe that Kayak starts off its journey as a public company on a solid note. It defied the current slowdown in economic growth by registering a phenomenal 93% increase in its net income this quarter, compared to the same quarter in 2011.
Kayak’s services are free for travelers and it earns revenues via two streams: (i) revenues from referrals to travel suppliers and OTAs, and (ii) ad revenues from advertising placements on its websites and mobile applications. Currently, international revenues only account for 20% of Kayak’s overall revenue, which implies that the company might not be as exposed to the European crisis as some of the online travel agencies such as Priceline (NASDAQ:PCLN) and Expedia (NASDAQ:EXPE).
Robust Growth In Search Queries
Queries refer to the user requests for travel information that Kayak processes. Historically, Kayak has registered a 39% CAGR in the total number of queries processed on its website, increasing from 238 million in 2007 to 899 million in 2011. In Q2 2012, the company processed 304 million queries, a 33% y-o-y increase from 229 million in Q2 2012.
We believe that the rising competition in the online travel market will lead to increasing shopper behavior, with leisure travelers hunting for the ‘best prices’. We expect the growth rate in queries to exceed growth in bookings and thus estimate the total queries on Kayak’s website to witness a CAGR of 24%, reaching over 3.5 billion by the end of our forecast period.
Additionally, last year Kayak launched its own booking path which enables users to complete their booking transactions without leaving the Kayak platform. The company presently has 8 collaborative partners for the direct booking path, which contributed 11% to the total revenues in Q2 2012. However, as Kayak gets more partners on board this scheme, we expect to see a gradual increase in the percentage contribution.
Growing Mobile Opportunity
At present, queries received via Kayak’s mobile application contribute to around 14% to the total search queries received by the company. In Q2 2012, Kayak registered a 95% y-o-y increase by processing 57 million queries via its mobile applications. Its mobile applications were downloaded 2.3 million times this quarter and the revenue per thousand mobile queries increased 42% year-over-year to $46.
Kayak believes that it has a more loyal mobile user base as compared to the PC user base. With a growing adoption of mobile devices around the world, we expect the mobile share of Kayak’s total queries to go up to 24% by the end of our forecast period.
Expanding International Presence
At present, Kayak operates its local website in 18 countries. Historically, it has added about 2 geographies to its list every year. In the last few months however, Kayak has accelerated the pace and has added 4 new geographies in the last four months with services now in Brazil (Aug’12), Russia (July’12), Poland (June’12) and Portugal (May’12). The company has also been increasingly focused on including more travel providers to its network.
The increased efforts seem to be paying off so far, as Kayak registered a 52% growth in international revenues in Q2 2012. With more countries added in the recent quarter, we expect international revenues, which currently stand at $15 million, to continue growing for the rest of the year as well.
We are in the process of updating our current price estimate of $31.05 for Kayak to incorporate the Q2 2012 results.