Kayak IPO Begins
It's been a long time coming but Kayak has updated their IPO filing and is headed out for open waters. Their S-1 was filed back in November of 2010. The deal has been delayed multiple times due in no small part to a lack of company maturity, increasing competition from Google with their acquisition of ITA and somewhat risk averse market.
It's possible that the bankers at Morgan are watching too many episodes of Mad Men but they obviously feel that the company is ready and the timing is right. It does appear that the major VC investors (Oak, General Catalyst, Sequoia and Accel) want to see the company public and are even willing to purchase more stock to absorb some supply from selling shareholders and support the offering.
But the company has executed their way into contention with solid growth numbers, expanding profit margins and a some renewed technology leadership, particularly in mobile where they now have a strong position on both the iPhone and Android.
We have some long-term concerns regarding Kayak from a technology perspective but their projected growth and profit margins make the deal reasonably attractive. A "success case" of our IV model incorporating the mid-point of management targets suggests a share price of $40. We also ran a somewhat pessimistic version of the model to which yield an IV of $16 to $18. Even with much slower growth and higher costs the margins in the business remain healthy.