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Priceline acquires Kayak for $1.8 billion five months after IPO

Eliza Kern — Thu, 08 Nov 2012 21:18:29 +0000

Priceline announced today that it has agree to acquire Kayak for $40 a share, valuing the online travel booking site at $1.8 billion. Priceline will pay approximately $500 million in cash and $1.3 billion in equity and assumed stock options, it announced today in a press release.

Kayak, which just completed its IPO in July 2012, initially filed to go public in November of 2010 but delayed the deal while looking for an improved market. Kayak’s stock closed at $31.04 on Thursday.

The company allows customers to compare travel prices across services, and is best known for its airline flight search, although it also does hotels and rental cars. Kayak processes more than 100 million user queries each month, it noted in the press release. The company was founded eight years ago by Paul English and CEO Steve Hafner. Priceline is one of the largest online travel sites in the world.

“A bomb just dropped in the online travel world,” wrote Rafat Ali of Skift. He noted that “Priceline will gain a great online and mobile team to build its portfolio and will put muscle behind the Kayak brand.”

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Attention: The social-web IPO window is now closed

Mathew Ingram — Fri, 27 Jul 2012 18:05:24 +0000

This isn’t how things were supposed to unfold with Facebook’s IPO. The social network’s public offering was supposed to be a once-in-a-lifetime moonshot, triggering a frenzy of interest in other social-web companies that would then ride that wave of demand to equally successful IPOs. At least, that’s what plenty of venture investors seemed to be thinking as they pushed up the private-market valuations of Facebook — which was supposedly worth $100 billion not long ago — and every other company with a social component, including Twitter.

Now Facebook’s share issue looks like a disappointment at best and a train wreck at worst, and the doubts that investors have about it as a growth business are likely to trigger broader doubts about the viability of every other social-web business without a rock-solid monetization model.

The reality of Facebook's limited ad model and plateauing growth is setting in. Scary stuff in internet social land. google.com/finance?q=FB
—
Steve Cheney (@stevecheney) July 27, 2012

It’s not just Facebook’s fault, of course. Groupon was the first major disappointment associated with the social web (although many have argued that it isn’t really a technology or web-based company and that it isn’t all that social either). Nevertheless, the group-buying service’s IPO was one of the first to test the waters for a technology-related offering, and by most accounts it appears to have failed miserably: The shares are down by more than 65 percent from their initial issue price, and the company’s financial performance has been lackluster, with few signs it will improve in the foreseeable future.

The other player that should share some blame is Zynga, although its poor performance is directly connected to Facebook, since the two have a symbiotic relationship: More than 90 percent of Zynga’s revenues come from the social network, and more than 10 percent of Facebook’s revenues come from Zynga-related payments. Shares of Zynga have fallen by about 70 percent from the initial offering price, and while insiders have cashed out to the tune of about $500 million, regular investors are still left holding the bag. As a result, anyone who was counting on the Facebook platform to be a cash-cow monetization scheme for social apps and other web services is likely revising their financial models by subtracting a few zeroes.

Is Facebook just a moderately successful ad platform?

And now we have Facebook, which is down by more than 50 percent from its initial offering price after what the market seems to have decided was an unimpressive quarterly earnings report. Although the company met estimates, those estimates had already been reduced during the run-up to the IPO, and there were enough question marks in the results — especially in the critical area of advertising revenue and the mobile market — that investors seem to have gotten spooked. Facebook’s market value is now hovering around $51 billion, which is barely half the $100 billion it was allegedly worth before it went public (Update: According to updated figures from Facebook, its current market value is $65 billion; a number of market-data sites like Google Finance have an outdated share figure).

As Om described in a recent post, there has proved to be an uncomfortably large gap between what private markets think these kinds of businesses are worth and what public investors think they are worth. So who is right? Regardless of where you come down on that question, public markets have the upper hand, since venture investors require some kind of liquidity event like an IPO to see a return on their investment. Even if they manage to pump a company’s valuation up and get out quickly after it goes public, the risk of miscalculation is still severe, and each lackluster offering makes it harder for the next.

The biggest issue with all of these companies — and the thing that makes this a much broader issue than just Facebook’s fate — is that their financial performance hasn’t even come close to the expectations that many seemed to have for social-web businesses, and that raises questions about the assumptions that venture investors have been operating on. What if Facebook isn’t a dramatically new kind of social-web business but just a moderately successful advertising platform and/or payment service? As one venture investor put it:

Zynga has been crushed, Facebook payments are effectively dead — Facebook is just a mediocre ad company with a ton of traffic.

Pressure to prove the social web can be monetized

Of course, Facebook could come up with some dramatically profitable new monetization method: some kind of e-commerce offering perhaps (although there is still much skepticism about that as well) or a way of making virtual payments work for something other than Zynga games. Or it could start charging for features like API access or some other aspect of the platform. But that would also be a substantial risk. And so investors are left waiting for the company to show that its social ads are going to generate enough revenue to make its valuation look reasonable, or that mobile is going to be a big moneymaker. But we are a long way from that now.

There is likely still room for some technology-stock offerings to do well, judging by the response to IPOs from companies like Kayak — the online travel service — and Palo Alto Networks. Both are web-enabled businesses, but they don’t rely on the same kind of advertising-based business model that Facebook and its ilk are shackled to. As a result, their monetization methods are a little more tangible and therefore easier to value. But even some of those kinds of companies are seeing valuations get reduced, as Square and others have found.

In hindsight, a lot of the assumptions about Facebook and what it was going to do for both social-web valuations and the technology sector in general were aggressive, to put it mildly. While much of the fallout may take place behind the scenes, in the offices of venture capital investors and the boardrooms of private money managers, there will definitely be an accounting for those ambitious expectations. And the pressure on companies like Twitter to prove they have a solid path to monetization will be ramped up even further. If you don’t like where that is taking the company, prepare to be further disappointed.

Post and thumbnail images courtesy of Flickr users Sarah Korf and George Kelly

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Kayak and Palo Alto Networks enjoy clean IPO take-offs

Ryan Kim — Fri, 20 Jul 2012 21:34:19 +0000

Kayak finally followed through on its long-awaited IPO plans Friday, raising $91 million on its first day Friday on the Nasdaq. The online travel company’s stock, which was priced at $26 a share, jumped by 27 percent, finishing the day at $33.18 a share.

Kayak went public alongside Palo Alto Networks, which finished the day at $53.13 a share, up 26.5 percent from its opening price of $42. The security software maker raised $260.4 million after selling 6.2 million shares. The two new listings provided a nice boost to the tech industry, which has seen most of its IPOs go south this year including the problematic roll out of Facebook .

Kayak’s run-up was especially drawn out. The company first filed to go public back in November of 2010, but delayed its IPO a few times after the market conditions looked dim.

“We will continue to strive to innovate and improve our technology in order to provide travelers with comprehensive, accurate and intuitive travel tools that they can access from whatever device they choose,” the company said Friday.

Kayak, which enjoyed a 32 percent revenue increase during its last fiscal year to $224.5 million and posted income of $9.7 million, still faces risks associated with its dependence on online travel agencies and travel suppliers. But it’s playing in a big market for travel, which generated $284 billion in revenue last year.

Palo Alto Networks offers customers a next-generation firewall that allows them to control applications and content. In the nine months ending on April 30, the company generated $179.5 million in revenue and $5.3 million in net income.

Combined with the recent successful debut of ServiceNow last month, the IPO market is looking up again for tech companies. It suggests that investors may be losing some of their wariness about tech stocks though we’ll have to see if it holds up over time. And IPOs are still behind where we were last year at this time.

Image courtesy of Flickr users Teeppix

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Kayak revives IPO plans, plans to raise up to $100M

Ryan Kim — Mon, 09 Jul 2012 12:39:04 +0000

Kayak, which first filed to go public back in November of 2010, is back on track with its IPO. The company updated its S-1 Monday, saying it is looking to raise up to $100.6 million after setting a price range between $22 and $25 per share. Originally, Kayak had planned to raise $50 million in its IPO.

The company, which plans to go public on the NASDAQ stock exchange, brought in $73.3 million in revenue and generated $8.1 million in income from operations in the first three months of the year. Revenue was up 39 percent over the same period last year, while operating income was up 174 percent after adjusting for a $15 million charge over the decision to end the SideStep brand name.

For the most recent quarter ending June 30, Kayak expects to report revenues between $74.5 and $76 million, representing 31 to 34 percent growth over the same period last year. Income from operations is expected to come in at $13.4 to $14.4 million, up 133 to 151 percent.

Kayak processed 310 million user travel queries in the first quarter of 2012, up 45 percent over 2011, and the company’s mobile app has now been downloaded 15 million times overall, including 3 million downloads in the first three months of the year. The company is part of a big and growing market for online travel, which generated $284 billion last year. But it still faces risks associated with its dependence on online travel agencies and travel suppliers, who can choose to not advertise with Kayak or may balk at the fees they pay Kayak.

Kayak has delayed its IPO a couple times already, looking to find better timing to go public. Since it first filed, a number of companies including Facebook, Zynga, LinkedIn, Groupon and others have gone public, with mixed results.

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Why ESPN is all about mobile

Om Malik — Mon, 30 Jan 2012 16:21:34 +0000

“Program and design from the mobile standpoint first, then extrapolate what could be applied for the PC, television and print experience.” – Michael Bayle, VP and general manager of ESPN Mobile

Apparently, for ESPN, mobile is now “the company’s fourth-largest network” and “has 150,000 people plugged into its mobile offerings at any given time” with “users spending 45% more time with ESPN mobile content in 2011 than the prior year,” according to this report in Media Post.

Those numbers are stunning — but not surprising (to me, at the very least). With more than 400 million smartphones expected to be sold, it makes perfect sense for sports to get the mobile bump. I mean, don’t we want the baseball gossip, score updates or results of the F1 race when on the go?

I have been a firm believer that when it comes to design these days, mobile comes first. That thinking was behind the redesign of my blog. Of course, I saw an increase in mobile visits and decided to go the full monty with my blog makeover. It is good to see that “mobile-first” thinking is spreading: Kayak and others are following the mobile-first approach.

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Why Kayak prefers mobile

Erica Ogg — Mon, 30 Jan 2012 13:00:24 +0000

One of the world’s most popular travel websites has decided mobile is better. On Monday, Kayak is rolling out an updated design for its eight-year-old site. But it’s not just any old tweak of the look and feel. Kayak is now consciously taking design cues from its recently updated iPad and iPhone apps.

Normally a web-based company that decides to make an app wants to translate the look and feel of its site to that app. But Kayak has been there, done that. And from the design team to the executive team, those within Kayak say it now makes more sense to do the opposite. “I got to the point where I actually liked iPhone app better than our website, I thought it was aesthetically more beautiful,” Kayak co-founder and CTO Paul English told me in an interview last week.

Here’s what the site will look like going forward:

If you’re a regular user of the site, you’ll notice some of the subtle changes right off the bat in addition to the shaded background and more consistent gradients and buttons. Chiefly, there are fewer filter choices and fewer flights displayed if they are duplicates or too similar (for example, if two flights are the same price, but one has a longer layover, Kayak will now hide the lengthier travel option unless requested to show it). The layout is also much wider, and how Kayak’s developers used that space is strongly influenced by the Kayak iPad app, which, when in landscape mode, is also a wide-screen device.

At its design lab up on Concord, Mass. Kayak does eye-tracking studies to see what users are or are not using. “Our design goal – if something is on the screen and people aren’t clicking on, we remove it,” said English. The overall goal in making the site look more like a mobile app is to shed unnecessary details and simplify.

Mobile first is a strategy we write about often here at GigaOM. Usually it refers to companies getting more traffic from their mobile apps than their web sites, but it also can mean that mobile is influencing the design of even almost decade-old products like Kayak.com.

If you really want to get a sense (and a good chuckle) of how far Kayak has come in the design department, check out this screenshot of what the site looked like when it first launched in 2004.

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Kayak: Lessons learned as it relaunches on the iPad

Erica Ogg — Tue, 20 Dec 2011 18:14:31 +0000

The first iPad app from Kayak arrived in March 2010, with the sweet deal of being handpicked by Apple as one of the few apps to be available at the launch of the original iPad. The only downside? Kayak’s designers had approximately two weeks to get an app together. Oh, and they’d never felt or seen an iPad before. So 22 months later, the team behind the most popular free iPhone travel app think they’ve got it right for the iPad this time.

On Tuesday, Kayak plans to launch a new app for iOS. It’s throwing out its old Kayak HD iPad app and making a universal Kayak app for iPad and iPhone.

We got a preview of the new app and the overall theme of the changes can most easily be summed up with the word “consistency.” For instance, now the navigation is all left-aligned, with the same icons that will be familiar to users of previous versions of the app. All the filters for searches (flight, cars, hotels) are on the left and the results on the right.

The designers in Kayak’s mobile development lab in Concord, Mass. spent a lot of time “nitpicking” and making the design language universal for the brand, said Bill O’Donnell, Kayak’s GM of mobile and chief architect.

“With this new release, we wanted to bring it up to modern iPad app standards and our own modern visual look we have in our iOS applications,” he said in an interview Tuesday. And making the way the app is navigated and making all the functions consistent (the UIs for flight and hotel search were different in the previous app) was a huge priority.

“It’s more consistent than before,” O’Donnell said. “Before, three different pieces of the app were developed by different people at different times.”

They also added in some features that have been on the Kayak website and in the iPhone app to this new universal iOS version, like rental car search and the Kayak Explorer (a favorite of those of us with wanderlust), an expanded trips management feature that allows you to send any reservation confirmation emails to the app, including concerts and restaurant reservations, and an auto form filler optimized for tons of travel sites Kayak works with.

Another major lesson learned is the implementation of direct booking of hotels. There’s a big impediment to being a an aggregator of travel deals when you’re working with mobile users: When you direct those customers to outside airline or hotel websites, you never know what exactly you’re sending them into.

“In mobile, you can get wildly varied experiences across airlines and hotel sites,” said O’Donnell. Some are Flash-based, some are just terrible quality. “And that’s a problem for us; we make money through referral fees. If you find something in our app and you can’t book it…we lose.”

Kayak introduced direct bookings for some hotels and flights a few months ago, but this is the first time it’s coming to the iPad app.

So what has the iPad team been doing these past two years? Since the 2010 iPad launch, Kayak has had a lot to figure out about the space — as in what users want, and what other developers are doing that’s cool and innovative — and learning to evolve with the maker of the iPad and arbiter of iOS app taste and style, Apple itself. “We had to learn all that. There’s no way around that except time and experience,” O’Donnell said.

It was also a challenge to figure out the difference between designing for a tiny iPhone screen, a much larger computer browser and an iPad screen. It takes far more time to design well for the iPad, according to O’Donnell.

“When you’re dealing with an app on an iPhone or an iPad, your application is the only thing on the screen. The big thing you control is edge to edge and top to bottotm; there’s nothing else to distract the user. To some extent, you can get away with a plain or sparse or austere website, because it’s framed in a Safari window or a nice Mac desktop or Windows desktop,” he said. But, “when you’re the only thing on the screen, that can look really bad. You have to pay attention to use of white space, lines, separation of colors and spend more design time on it.”

There’s also something in here for users of Kayak’s iOS apps to learn: The new app, as mentioned before, is universal. So if you have the old iPad HD app, that one’s dead now and won’t be updated again. The new iOS app, which is still free, will have to be downloaded anew. It will detect if you’re downloading it on an iPhone or an iPad. It should be in the App Store later today.

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Want to go public? It might not be a good time

Om Malik — Mon, 03 Oct 2011 16:23:05 +0000

The window of opportunity for Initial Public Offerings (IPOs) is almost closed according to a report released by the National Venture Capital Association (NVCA) in conjunction with Thomson Reuters. The report points out that the third quarter of 2011 was the weakest quarter since the end of 2009. Here are some salient numbers:

Q3 2011 saw five venture-backed IPOs valued at $442.9 million, down 92 percent in dollar value compared to the second quarter of 2011 and a 65 percent drop in dollar value from Q3 2010.
Four of the five IPOs were from the information technology (IT) sector versus 14 of the 21 IPO during Q2 2011.
Of the four IT IPOs, there were two Internet companies, one hardware and one software company. Among the notable IPOs during the quarter: Zillow.
Four of the five IPOs of the quarter were based in the United States, while Tudou.com is from China.
For the third quarter, 101 venture-backed M&A deals were reported, 35 had an aggregate deal value of $6.3 billion.

It is not a surprise Kayak delayed its offering and the Groupon deal is on shaky ground. The broader economic troubles are slowing demand for all kinds of stocks and IPOs are no different.

In case you were wondering: what was the impact on startups? Nothing in the near term, especially for companies that are relatively small and are still in the early stages of their life.

In addition, the companies that are being accorded jaw-dropping billion dollar plus valuations also have their work cut out. The troubles with the Groupon IPO are indication that there are no quick exits, despite what you might read, and companies need to grow into their valuations.

From the M&A perspective, 2011 is turning out to be softer than 2010, though in pure deal numbers. So far 310 deals have been announced in 2011 versus a total of 431 deals last year. It shouldn’t surprise anyone if we see a rapid escalation in M&A activity, especially if the IPO window continues to be shut.

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Can social media IPOs make up for greentech struggles?

Katie Fehrenbacher — Wed, 15 Jun 2011 07:00:22 +0000

Last month, I raised the idea that the LinkedIn IPO might be bad for cleantech investing because a coming bubble around venture-backed social media companies will only add to the trend of VCs moving away from investing in cleantech. But here’s at least one reason why a wave of big returns for VC-backed social media companies might help greentech, at least indirectly: Huge returns on web investments for a venture firm could help make up for under performing greentech investments in a firm’s portfolio.

OK, I’m generalizing here, given it’s hard to declare startups a loss for investors, particularly when greentech companies seem to have a lot longer time frame to achieving revenues or getting an exit. But clearly, in some cases it’s the same venture firms that will be collecting on the latest social media IPOs — Groupon, Pandora, Kayak, potentially Zynga — that have also led some of the more high-profile, and capital-intensive, investments in greentech firms.

Take New Enterprise Associates (NEA), which will be one of the big winners from the Groupon IPO. According to these calculations in the Wall Street Journal (taken from Groupon’s S-1), NEA put $4.8 million as the first institutional into Groupon and then followed that up with a $10 million investment in November 2009. For NEA’s $14.8 million, the firm currently holds 14.7 percent of Groupon Class A stock, and that’s after NEA already cashed out $70 million in December. If Groupon goes public, that percentage could be worth $2 billion, or a 135 x on-paper multiple (the article posits it could be worth up to $3.4 billion on paper). NEA’s entire fund (for Internet, mobile, cleantech etc.) was $2.5 billion.

Now look at some of NEA’s over two dozen investments in greentech. The firm might have a few wins, like if electric car maker Fisker Automotive goes public, and Opower seems to be doing well. But there are greentech startups in its portfolio that are pretty capital-intensive and also not clear winners like Bloom Energy, HelioVolt, GridPoint, and Konarka, to name a few. Thin-film solar company HelioVolt has been stuck in a pre-commercialization phase, despite raising over $100 million, and last I heard, NEA investors were openly trying to sell it. Konarka is also stalled in a perpetual R&D phase, while GridPoint has raised a lot of money and hasn’t seemed to secure that many paying deals. Nine-year-old Bloom Energy has raised at least $400 million, and I’ve heard rumors that it’s running out of money for more expansion, though if the company goes public and the IPO is successful, NEA could do well on it.

It’s hard to tell which startups, in the greentech space or otherwise, will end up being homeruns. But NEA’s Groupon return will basically trump the return on all its other investments — and namely its likely losses on greentech — combined for years. So in a way, perhaps the social media is indirectly a good thing for a venture firm’s overall portfolio, so the fund can have some wiggle room on potentially risky greentech losses. Hey, just sayin’.

Image courtesy of Dr. Stephen Dann.

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How Brands Can Make Facebook Stores Pay Off

David Card — Tue, 31 May 2011 19:17:06 +0000

Last week, investors poured money into ShopIgniter ($8 million) and Milyoni ($3 million), two companies that build Facebook storefronts for merchants and retailers. I’m not the only analyst who’s skeptical about that opportunity. Literally thousands of merchants are building Facebook stores, and they’ll have to overcome some serious challenges to make them effective shopping vehicles.

Over 150 big brands have built Facebook stores, meaning apps that can handle transactions rather than just function as marketing brochures or catalogs. Facebook store-builder Payvment claims it has 60,000 stores running in its network of Facebook apps. ShopIgniter, Milyoni, and Payvment compete with a dozen or more other startups that offer white-label e-commerce platforms for Facebook, including Usablenet, MoonToast, Fluid and 8thBridge, which raised $10 million in March. Other companies, such as ShopTab and SortPrice, help retailers integrate Facebook pages to online stores . The space is getting a little crowded.

While a Booz & Co. survey of social network users who shop online implied that 27 percent of them would be interested in buying within a social network, 73 percent wouldn’t. Based on interviews with online retailers, Forrester doesn’t think social networks are very effective at promotion, let alone generating actual sales. What’s more, online shopping is a directed, search-driven activity, and the mall approach of aggregating stores didn’t work for big portals like Yahoo and AOL, even with their powerful promotion capabilities.

Based on his analysis of the psychology of shopping, social psychologist Paul Marsden thinks Facebook stores will be good for impulse buying as well as more-considered purchases that depend on word of mouth, especially for first-time buys in high-risk categories. That makes sense to me for certain product categories where personal experience is highly valued, such as expensive vacation packages and high-end baby carriages for new mothers. I’m less convinced it will outweigh structured comparison searching for financial services or consumer electronics, where exhaustive inventories, “technical” info, price comparison and expert advice should rule. Impulse purchases often require instant gratification, which would seem to point in the direction of digital goods like movies, music and games.

But these tactics could help retailers make their Facebook stores more effective, despite the challenges:

In-stream promotion. Facebook lacks a big front-page ad format that could drive new DVD releases or Mother’s Day flower purchases. The closest equivalent is promoting products in the news feed. Sales and group offers might cut through the clutter.
Social commerce integration. Facebook says its own Offers will focus on group purchases rather than discounts. Integrating proven social commerce elements like daily deals, flash sales and group buying for fans with the store will be critical.
Ties to brick-and-mortar loyalty programs. Retailers should allow points redemption in their Facebook stores and even count Facebook store visits toward check-in deal points.

For more of my thoughts on the challenges facing Facebook stores, read my Weekly Update at GigaOM Pro (subscription required).

Image courtesy of: flickr user Auswandern Malaysia

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