We recently launched coverage of
Kayak with a roughly $800 million valuation
. Unlike online travel agencies like Expedia (
) or Priceline (
), Kayak does not provide online bookings directly but provides
consumers a one-stop research solution to best fares along with
other value-added services like flight status updates and pricing
We believe advertising revenues make up over 60% of Kayak's
valuation while referral fees from hotel queries and air ticket
queries constitute 21% and 14% respectively.
Here's the Skinny
Kayak is a technology-driven company founded in 2004 by the
co-founders of Expedia, Travelocity and Orbitz. In addition to the
strength of the management team, the investors include some of the
most prominent venture capital and private equity firms, including
Sequoia Capital, Accel Partners, General Catalyst Partners and Oak
Investment Partners. As of October 2010, Kayak had 140 employees
with local websites in 14 countries outside the US, including UK,
Germany, Germany, France, Spain, Italy and India.
Kayak facilitates the quick and easy comparison of fares
collected from hundreds of travel websites (both suppliers' and
online travel agencies' websites) and, once the user makes a
selection, directs the customer to the appropriate website to
complete the purchase. While Kayak's services are free for
travelers, Kayak earns revenues from advertising placements on its
websites and mobile applications as well as referral fees from
travel suppliers and online travel agencies.
We have broken the company down into 3 primary divisions.
Hotel Referral Fees
3) Airline Ticket Referrals
on Google-ITA Deal Can Impact Kayak
Kayak filed an S-1 statement with the SEC for a proposed initial
public offering expected in mid-2011. However, Google
announced its intentions to acquire ITA Software, a provider of
online travel faring information, raising some concerns for Kayak's
outlook. ITA Software licenses its faring software to Kayak, and
this agreement will expire in December 2013. The faring
software accounts for 42% of Kayak's overall airfare query
Airline travel queries account for 85% of the total searches
performed on Kayak's websites and its mobile applications. Hence a
loss of access to ITA's software could have a significant adverse
impact on the comprehensiveness of query results and, consequently,
on the company's revenues and operating margins.
An additional risk is with Google in charge may be that ITA
could refuse to continue working with Kayak and similar providers -
or do so with unfavorable terms. Some have suggested that the IPO
may provide a way for the investors to cash out or reduce their
exposure to Kayak.
We await further details as the IPO approaches.
See our full valuation analysis for Kayak.