Skift Take

Start your engines. Kayak is beginning its road show in a bid to raise more than $100 million in an IPO. The company will face tough questions about Google's acquisition of ITA Software and whether it can paint a big enough growth story to satisfy would-be investors.

Source: Skift
Author: Dennis Schaal

Some 21 months after getting the process under way and battling the ITA Software overhang, international debt crises and the Facebook IPO blunder, Kayak is finally beginning its IPO roadshow and trying to raise $100 million.

Kayak plans to issue in excess of 4 million Class A shares, at a price range of $22 to $25, and this would bring the total proceeds to more than $100 million.

The actual pricing of the offering would be set the night before the prospective listing. If all goes according to plan and investors buy into Kayak’s story, then it could become a public company the week of July 16.

Based on a possible $25 per share price, Kayak’s valuation would be some $977 million.

And, if the share price range topped out at $27 as the IPO fruition date draws close, then Kayak’s valuation would exceed the magic $1 billion milestone.

It is difficult to see the $1 billion scenario playing out, however, given the identity of Kayak’s lead underwriter, Morgan Stanley, and the skepticism in some circles about the Kayak IPO.

Morgan Stanley, which led the Facebook IPO, had egg on its face when Facebook’s share price plummeted from the initial offering price and had to be artificially supported by Morgan Stanley on opening day.

Kayak officials will have to do a lot of smooth talking on the road show before the company hits the $1 billion high-water mark.

Holders of Class B shares would retain solid control of the company, wielding 98.6% of the voting power, according to an amended prospectus filed with the Securities and Exchange Commission.

Based on an assumed offering price of $23.50, Kayak’s net proceeds would be $72.7 million.

Kayak states it doesn’t have any specific plans on how it would use the net proceeds, which would be dedicated to general corporate purposes, including working capital.

“We may also use a portion of the proceeds to expand our business through acquisitions or investments in other other strategic businesses, products or technologies,” Kayak states.

Kayak’s dependence on faring technology from ITA Software, acquired by Google and used in Google Flight Search, has been worrisome to potential new investors. Kayak’s contract with ITA Software runs through the end of 2013.

Although Kayak has recently increased its use of faring technology from Amadeus and other search methods outside the ITA product portfolio, Kayak states in the prospectus: “In addition, we believe that alternative faring engine solutions currently do not provide the level of comprehensiveness and accuracy that ITA’s software provides.”

Kayak unveiled its expected financial results from the second quarter of 2012, which ended June 30.

Driven by increased user queries, including a healthy increase of downloads of its mobile apps, Kayak expects revenue to rise 31% to 34% to between $74.5 and $76 million in the second quarter.

During the quarter, and possibly in anticipation of the road show, Kayak reined in cost of revenues, marketing and general administrative expenses, which fell as a percent of revenue.

Income from operations in the second quarter was expected to come in at $13.4 to $14.4 million, which would represent growth of 133% to 151% over the second quarter of 2011.

The jump in income from operations was catapulted by the revenue increase and the cost of revenue curtailments, Kayak stated.

Downloads of Kayak’s mobile apps during the second quarter increased a whopping 40% to 2.3 million, the company states.

If successful, Kayak would trade on the Nasdaq stock exchange under the symbol KYAK.

In other news from the amended prospectus, it appears Kayak’s two-year old dispute with Orbitz over Kayak’s advertising practices is edging closer to a resolution.

The two parties are negotiating a settlement agreement, including a “limited amendment” to their 2009 contract, and this would resolve ongoing arbitration and litigation, Kayak states.

Orbitz felt that the parties 2009 Promotion Agreement gave Orbitz certain exclusivity rights in Kayak’s search results in North America, and it argued that Kayak breached them.

Kayak, on the other hand, alleged there was no such breach and that Orbitz underpaid Kayak.

In the amended filing, Kayak states an independent auditor concluded that
“Orbitz underpaid Kayak for 2008 and 2009 in varying amounts, between $49,047 and $2.85 million.”

Kayak initially filed its prospectus in November 2010. By all accounts, the process was delayed by Google’s acquisition of ITA Software, which many observers thought would severely crimp Kayak’s growth prospects.

In the interim, the IPO market dried up, opened up and went dark again over various global economic crises and after the Facebook IPO proved to be a dud out of the gates.

Here’s the video that Kayak released in tandem with the start of its roadshow.


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Tags: ipo, kayak

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