Posting a 36% y-o-y increase in its total revenues in Q2 2012, we believe that Kayak (NASDAQ:KYAK) started off its journey as a public company on a solid note. A leading travel search company, Kayak delayed its IPO for over 20 months before finally listing in June this year with an initial listing price of $26. The company reported its Q3 2012 earnings on November 8, and with a 29% y-o-y increase in revenue and a 14% y-o-y increase in net income, it continued its growth momentum despite macro headwinds.
However, amid the strong results, what came as a surprise was Kayak’s announcement of being acquired by leading online travel agency Priceline (NASDAQ:PCLN). The two companies signed a definitive agreement for a stock and cash agreement of $1.8 billion with Priceline agreeing to pay $500 million in cash and and the remaining ($1.3 billion) in equity. The company will pay Kayak shareholders $40 per share, which marks a 29% premium over its closing price on November 8 and almost a 54% premium over Kayak’s initial listing price of $26.
Kayak believes that Priceline’s global reach will accelerate its growth trajectory in international markets and help it develop as a company. The transaction is expected to close in the first quarter of 2013 and Kayak will operate as an independent unit within Priceline.
- Priceline’s Acquisition Will Unlock Kayak’s Value
- Hotel Queries On Kayak Are Expected to Grow Significantly
- Kayak Focuses On Its European Expansion Before Joining Priceline
- How Kayak’s Business Model Creates Value
- Downside Risks To Priceline’s Kayak Acquisition Due To Google-ITA
- Factors Driving Kayak’s $26 Valuation
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 40% y-o-y growth in international revenues in Q3 2012. Though Kayak and Priceline do not plan to launch shared platforms, we feel the former can leverage on Priceline’s expanding presence in international markets, especially Europe. We expect international revenues, which currently stand at $17.3 million, to continue growing in the future as well.
Leverage Growth In The Mobile Platform
At present, queries received via Kayak’s mobile application contribute to around 14% to the total search queries received by the company. In Q3 2012, Kayak registered an 87% y-o-y increase by processing 56 million queries via its mobile applications. The number has marginally declined compared to last quarter as Kayak changed its methodology to make counting a mobile user query consistent with the methodology for counting website queries.
Kayak’s mobile applications were downloaded 3.1 million times this quarter, a 95% increase over last year. 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.
Priceline has also made significant innovations to tap the growing mobile user base and has witnessed increasing usage trends in mobile. We feel the two companies stand to gain from each others expertise in the domain.
We are in the process of updating our price estimate of $29.87 for Kayak.