Ctrip’s acquisition of Skyscanner for £1.4 billion amounts to approximately 9x forward revenue assuming revenue grows at close to 29 percent in 2016 as it did in 2015. The valuation is a premium to past metasearch deals. Kayak was sold to Priceline for roughly 7x 2012 revenue back in 2012. At the time, Kayak had an EBITDA margin of close to 23 percent versus Skyscanner at 15 percent in 2015. Revenue growth was comparable with Kayak at 30 percent and Skyscanner at 29 percent.
Given the scarcity of quality metasearch companies with global scale, Skyscanner’s strength in air, and Ctrip’s desire to push more outbound travel, the acquisition price looks reasonable (the stock is up 7 percent in after-hours trading at the time of writing).
WHAT DOES THIS mean FOR TRIVAGO’S IPO?
More recently in our 2017 Outlook on Metasearch in Travel, we walked through the implications from the initial $400 million amount in the preliminary prospectus; this is a placeholder as the investment banks build their books, but if it changes, the amount should go up, not down from here.
The clause below implies that the founders will start off with nominating rights and that they will still hold over 15 percent of the company (currently, Expedia owns 63.5 percent of Trivago).
If the Founders, collectively, hold less than 15% of our outstanding Class A shares and Class B shares (calculated as if all securities convertible, exercisable or exchangeable for Class A shares or Class B shares had been converted, exercised or exchanged), they lose certain contractual rights to nominate members of our management board.
If the $400 million being sold left the founders with a 15 percent stake, the implied IPO value would be $1.9 billion for Trivago as a whole. At the other end of the spectrum, if the $400 million left the founders with a 26 percent stake (selling 10.5 percent), the IPO valuation would be $3.8 billion.
If we apply the Skyscanner acquisition multiple, Trivago’s valuation would be between $6.5 and $7 billion.
Given the control by Expedia and likely limited float, a $6 to $7 billion implied IPO valuation seems unlikely, but the Skyscanner deal certainly should increase demand for Trivago shares ahead of and after the IPO.
Our best guess is that the IPO is oversubscribed and Trivago as a whole exceeds a $4 billion valuation after its first day of trading as a public entity.
What about Momondo?
If we applied Skyscanner’s multiple to Momondo, the company would be valued at approximately £800 million based on 2015 numbers. Using forward guidance for 2016 growth, that valuation would balloon to £1.1 billion.
Momondo is the smallest of the big Metasearch companies, but has carved out a nice niche for itself with its deeper purpose approach; the DNA journey being an example. We expect strong revenue growth to continue. Over time, marketing and ad spend will come down and profitability will follow. Given the private equity ownership, at some point an IPO seems likely.
With the Skyscanner valuation, Trivago owners and Momondo private equity investors should enjoy the surprise Thanksgiving eve deal news.