Why Travel Search Firm Kayak Wants to Go Public Now—Some More Analysis

11/23/10Follow @gthuang

Last week, the online travel world watched with considerable interest as Kayak, the Norwalk, CT-based travel “meta search” company, filed for a $50 million initial public offering. There has been a lot of debate about how much Kayak is actually trying to raise, how much the company is worth, and why it wants to go out for an IPO now, given that there’s a lot of volatility in the online travel technology market. The company is currently in its quiet period, so it won’t be commenting on any of this publicly.

Kayak stands to lose a fair amount of business if Google’s $700 million acquisition of Cambridge, MA-based ITA Software, announced in July, goes through. That’s because Kayak licenses ITA’s airfare pricing engine to power its comparison shopping service across different airlines and itineraries. With Google as a new competitor, it’s safe to say ITA’s technology will either become unavailable, or will be offered to Kayak on less favorable terms (see Fortune.com’s analysis of the financial implications here). In fact, Kayak is part of a coalition of companies—which also includes Expedia, Hotwire, and Sabre Holdings—that is formally opposing the Google-ITA deal, arguing that the acquisition will harm competition and lead to less choice and higher prices for travelers.

So why file for an IPO now? One senior analyst says going public is “an audacious objective” on Kayak’s part. “You don’t do an initial public offering filing if you think your business is going to be harmed in the near term,” says Henry Harteveldt, an airline and travel analyst with Forrester Research. “This is a sign of optimism and confidence on Kayak’s part.”

According to Kayak’s S-1 filing with the SEC, it has about $30 million in cash in the bank and has been modestly profitable since 2008. The company had net income of about $6 million through the first nine months of 2010, and had 140 employees as of the end of October. Its current contract with ITA Software expires at the end of 2013.

From talking with Harteveldt and other travel observers, it sounds like Kayak’s venture investors might be pushing for a liquidation event as soon as they can, before the effects of the potential Google-ITA combination can really kick in. In the meantime, filing for an IPO will give Kayak more information about how strong the market is. And if the company continues to do things like expand in Europe, increase its offerings in vacation packages, cruises, and hotels, and add new wrinkles to its search tools, it still could have a bright future—with or without ITA’s services.

Harteveldt emphasized that Kayak is not in a desperate situation. “This is not a cash call,” he says. “This is not a ‘burn the furniture to keep the lights on’ kind of move. This is a way to extract some value from a private company and see if it can grow in the public markets.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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