Kayak is finally floating its initial public offering (IPO) today, but some analysts think it faces rough waters ahead.
Today the stock debuts on NASDAQ as KYAK. The company raised more than it sought for its IPO, with about 3.5 million shares priced at $26 each, above last week’s expectations of $22-25 a share.
Paul English, Kayak’s co-founder, chief technology officer and recently appointed president, will own the most shares of KYAK, at 8.9%, meaning he stands to make $89 million when his shares are fully sellable.
But is the metasearch website truly worth its expected opening day valuation of $1 billion?
The company rang up sales of $245 million in the 12 months through end of March. The metasearch site claims 10 million monthly uniques, with 14 million downloads of its apps to date.
We asked a few widely respected analysts to give context and predictions
Dan Su, Senior Equity Analyst at Morningstar in Chicago, is cautiously optimistic. Here are her views about Kayak’s next challenges:
“Biggest challenge is how to grow its air travel business, with increasingly more aggressive direct selling efforts by airlines (to cut distribution spending on platforms such as Kayak) and uncertainties surrounding the access to ITA data when current contracts expire.
“The international hotel booking is an attractive space, but I think TripAdvisor (TRIP) provides more useful and sticky services than Kayak and has a much stronger branding too.”
Rob Enderle, principal analyst at The Enderle Group in San Jose, Califirnia, says:
“Given recent IPOs odds are against them sustaining their current valuation this year. But if they stay focused, they could exceed it again within 3 years.
“They have to stay focused on the customers; many newly public companies get too involved in personal wealth, reporting, and the other mechanics of running a public company — forgetting customers and losing their edge.
“Kayak’s biggest growth challenge? Near term it is regulation and related costs which can soak up an impressive amount of resources. After that it is putting in place a growth strategy that emphasizes their strengths and eliminates weaknesses.”
Lorraine Sileo is vice president, research, at PhoCusWright. Having studied the travel industry for a couple of decades, she is cheering on Kayak so that its success can attract more money to the online travel sector as a whole.
“I think Kayak will do fine post-IPO. They are smart people who are ready for the next phase of development, if they invest their money wisely and make some smart acquisitions.
“Their biggest challenge is growing in hotel, they need to have a great value proposition for hotels and help hotels drive bookings to their sites.
“Right now they are too dependent on the major OTAs.
“Kayak proved Google won’t crush it. Whether Kayak can retain its value several years from now will have less to do with Google and more to do with its success with hotel, mobile and international sales.”
So, after 21 months of talk, Kayak’s IPO is on. The delay is an example of how since the 1990s the average time to IPO in the U.S. has more than doubled to 10 years.
For now, it seems like the delay was worth it. Notes Enderle, it was a successful IPO, which typically attracts money and interest into the related space. Other travel tech players may benefit by renewed venture capital attention to the sector.
But Su of Morningstar is skeptical that there will be another big travel tech IPO this year.
“No other potential IPOs in online travel in the near future, in my view. The most established players are public already.
“Airbnb is an interesting concept and the start-up has been gaining popularity among younger travelers, although an IPO may be a few years away provided that the firm can maintain the current growth trajectory and start to make profits.”
Kayak is a Connecticut-based company that launched its metasearch engine in 2004 by co-founders of popular travel sites Expedia, Travelocity and Orbitz.
Morgan Stanley and Deutsche Bank Securities are book-running managers for its IPO. Morgan Stanley most recently handled Facebook’s IPO.
UPDATE: To coincide with the financial rite of passage of “ringing the bell”, Kayak issued a statement:
“Becoming a public company marks an important and exciting milestone for Kayak. Our team intends to stay focused on creating the best place to plan and book travel.
“We will continue to strive to innovate and improve our technology in order to provide travelers with comprehensive, accurate and intuitive travel tools that they can access from whatever device they choose.
“Kayak’s profitable business model blends the best of technology and travel and we are confident in our long-term health and competitiveness.”
