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Travel search engine Kayakwas all set to go public almost two years ago, but a dismal economy and an iffy stock market forced the Connecticut-based company to pull its offering. Times have changed, at least for online travel companies, and Kayak is ready to try again.
Earlier this week Kayak set a price range of $22-$25 for its float of 3.5 million shares, and revealed its ticker: KYAK. In the aftermath of the Facebook IPO, with shares of the offering of the decade still clawing their way back up to first day prices, tech startups with public market ambitions better have a very good story to offer potential investors. Kayak's story involves timing, and an online travel sector that has been as busy as a summertime airport security line.
"Overall there is a great investor appetite for travel companies," says Moringstar analyst Dan Su ticking off Kayak's peers in the market: "Year to date, TripAdvisor's stock is up 77%, Expedia's is up 57% and Priceline's stock is up 40%." That blows away the tepid 11% Nasdaq and 6% S&P 500 increase seen in the same period.
The reason most online travel companies are soaring, Su says, is that more than ever travelers want a deal. Kayak delivers deals by searching travel book sites (Expedia, Priceline), hotel listings, and airfare from major airlines to help its customers book the cheapest trip, and it's traffic is growing as a result. Search queries on Kayak were up 41 percent in the last quarter, notes Ali Naveed, a senior analyst at research firm Trefis.
Kayak makes money by referring customers to travel-booking services like Expedia, Priceline, or Travelocity. If you end up on an airline or hotel website from Kayak, the company gets a commission when you make a reservation. True to its internet business roots, Kayak also gets advertising revenue.
The flip-side of this single-minded devotion to deals, has been to make brand loyalty to individual airlines and hotel chains a thing of the past, especially among casual travelers -- those going on vacation, not business trips. "Only 31 percent of airline and hotel customers say they are loyal to a specific brand," says travel analyst Henry Harteveldt. Because these disloyal travelers don't care which airline is getting them across the country so long as it's not a blow to their credit cards, they are drawn to Kayak's promise of helping them find the best deal around.
However, if travelers are reluctant to commit to a specific airline, they might just as easily bail on Kayak when a faster, simpler travel search engine comes along. Kayak's fastest-growing threat is Google, which acquired ITA, the company that provides Kayak with travel data. If Google uses ITA's technology to create a better and faster travel service it's only a matter of time before Kayak feels the heat.
"The biggest disintermediary in the travel search space is Google," says Mark Mahaney of Citigroup. "There is an increasing percentage of online travel searches done through Google, which is a bit a of a warning to travel companies. And there are more travel-related Google searches now than there were five to 10 years ago."
The looming Google threat not withstanding, the trends in travel are certainly lining up for Kayak to pull the IPO trigger, but there is another reason why it may be so eager to finally start trading, Su says. Kayak's investors including Sequoia Capital and Accel Partners have been waiting years for an exit.
"I don't think Kayak has much choice in deciding to go public now," says Su. "In general you don't see a company sitting in the IPO pipeline for this long. It's better for them to do it now in a market that's somewhat favorable than wait for a perfect moment."
