Blog Post

Orbitz, the worst IPO of 2007?

We’re not even halfway through 2007 and I’m ready to make a nomination for worst IPO candidate of the year: Orbitz.

You may recall that Orbitz – the online travel site founded by five major airlines in 2000 – went public at $26 a share in 2003. It filed documents Thursday to go public again. But the Orbitz of 2007 is very different from the Orbitz of old.

A lot has happened since that first IPO. Nine months later, Cendant bought Orbitz for $27.50 a share. Cendant rolled Oribitz into its online-travel segment, named Travelport, and sold it to private equity giant Blackstone Group last summer. Now Blackstone and Travelport want to spin off Orbitz to the public market.

Orbitz isn’t a bad company, and there’s nothing wrong its spinoff. The problem is how it’s being spun off. It’s happening way too early, and with little consideration of Orbitz itself or its future shareholders.

Look through the financials in the prospectus. As Paul Kedrosky pointed out on his blog, “these are absurdly complex financials with difficult historical comparables.” After so many deals and restructurings, only its name hasn’t changed.

But there’s one simple thread running through Orbitz’ financials: Any way you slice it, the company had a net loss and an operating loss in 2004, 2005 and 2006. It used to be companies in the red couldn’t get through the IPO gates. Now most are, but they’re not doing so hot afterwards.

That’s okay, because as a fund manager buying a big stake in Orbitz, you’ll have some say in how it’s run, right? Wrong: As the prospectus says, “Travelport’s controlling holders will continue to control us and may have strategic interests that differ from ours or yours.”

So let’s see – no voting rights, a history of losses, a financial statement complex enough that a doctoral student could base a dissertation on it, and more plastic surgery in the past three years than the Gabor sisters combined – what’s not to like?

But wait. IPOs can raise capital to help companies expand with new staff, marketing and R&D. So surely Orbitz will benefit from that?

Wrong again. Take a look at this document, marked “confidential” but posted for all to see on Travelport’s investor-relations site. It’s from a presentation Travelport CFO Mike Rescoe made at a UBS investment conference Wednesday. On page 11, it notes that the IPO will happen by October, then says this:

“All net proceeds will be used to pay down Travelport OpCo debt. In addition, Orbitz will raise debt at its OpCo level, a portion of which is also expected to be used to pay down Travelport OpCo debt … We expect the Orbitz related transactions to result in a $1.3 billion paydown of Travelport OpCo debt.”

This latest Orbitz IPO is a lamb being rushed to the sacrificial altar simply to pay off Travelport’s debt. Why is Travelport in such a hurry? The answer may lie on page 12 of the UBS investors presentation:

“Additional potential paths to drive additional debt repayment include (i) follow-on sale of Orbitz shares and (ii) IPO of a combined Travelport/Worldspan and GTA business, among others.”

In other words, after wringing Orbitz dry through initial and secondary offerings and new debt, Travelport will take itself public. Travelport’s biggest and most profitable business is Galileo, which started out as Europe’s answer to Orbitz, but now includes data from nearly every airline in the world.

Given how cavalier the markets have grown about IPOs, I don’t blame Blackstone for this gambit. I actually admire its boldness. As for anyone bold enough to buy into this IPO, the payoff isn’t anywhere as sure.

23 Responses to “Orbitz, the worst IPO of 2007?”

  1. I have used Orbitz, hotwire, Expedia and Travelocity, all have their pro’s and con’s.

    I spotted a site called, find air tickets so cheap that my savings were about 35% cheaper than Orbitz, hotwire, Expedia and Travelocity. Flights internationally such as Europe in particular that are great and South American, China and middle East countries, they have excellent rates. Domestic though there are some what competitive where I used either Hotwire or the airlines direct from their web sites.

    What I really like about is they sell tickets on US dollars in foreign countries and all their tickets are e-tickets so if you are in France and need a fight to St.Petersburg Russia or London or Frankfurt, they sell everything in US dollars and you have your tickets emailed in 10 minutes so you can just travel just like that. Orbitz, Expedia and Travelocity, they sell their tickets if you are out of the US, they will charged you the currency in that country if you want to fly from there to somewhere else. So if I was in France for example and I want to fly to London, Frankfurt or anywhere, they will charged me in Euros or Pound Notes (it is like charging you double when the US dollar is so weak) when if you are an American and want to save, you can’t save because Orbitz, Expedia, Travelocity will charged the currency if you are outside the United States but with, they don’t. Euros, Swiss Marks, British Pounds, Russian Rubles and etc, they currencies are high to the US dollar and if you are an American, you are stuck if you have to meet those currencies if you have only US dollars.

    So consider if you have a money budget and you can’t afford the high currencies, try


  2. Another X - Orbiter

    Having just left Orbitz I can tell you that they have some of the most talented people in the industry, although IMHO they have too many kids in high level managerial positions with little to no experience in formal management training. Nevertheless their technical expertise is what makes their website service a success. Again IMHO the IPO failed because stockholders can read between the lines and as stated earlier in the BLOG it was a premature attempt by Blackstone to repay their debt to Travelport and possibly flip the company again in the very near future with no short or long term plan for economic growth except for reducing staff, reducing budget and cutting programs.
    Don’t blame the people of Orbitz, blame Blackstone for not having a positive plan.

  3. Jeremy McMillan

    All of these people I used to work with at Orbitz had been ignoring my LinkedIn invitations but have suddenly embraced my network. I don’t think there is much talent working there any more. Just a lot of bodies holding down the fort.

    The main service they provide is an abstraction to hide all of the frenetic intraday repricing by the suppliers (Airlines) from Joe Holiday. Airlines do all kinds of evil crap to their fares (multiple fares offered for the same seat on the same trip with retractions, additions and revisions multiple times a day). Suppliers (Airlines) still own almost all the business, and the distribution business has no power. Orbitz is a long Term Loser, or at best a dog.

  4. Sumitra Menon

    Leading Silicon Valley entrepreneur and strategy consultant Sramana Mitra, evaluates Orbitz in terms of Context, Content, Commerce, Community, Vertical Search and Personalization, based on her Web 3.0 framework.

  5. ExOrbiter

    Agreed, but a couple of corrections:
    Galileo was never “Europe’s answer to Orbitz” — it is a GDS. Travelport acquired Worldspan to merge with Galileo. Those businesses are very B2B.

    eBookers is the dog dragging down Orbitz numbers. That was a terrible acquisition and has been hugely unprofitable by all accounts.

  6. Martin

    There is one very telling sentence in this document which really says it all:

    “Partially offsetting the higher domestic volume was a $17 million reduction in net revenue due to lower average commissions on our air transactions and reduced paper ticket fees as airlines continue to move toward electronic ticketing. In addition, 2006 air net revenue was reduced by $8 million as a result of the final contractual step-down in commissions paid to us by the airlines with which we have charter associate agreements.”

    Enough said… anybody who can’t see the curve in their earnings in terms of commission from airlines, well…

  7. You say that “Orbitz isn’t a bad company, and there’s nothing wrong its spinoff” and then later “Any way you slice it, the company had a net loss and an operating loss in 2004, 2005 and 2006”. I think you should look at your definition of what’s a bad company.

  8. Mike B

    Looks like Interactive Brokers is shaping up to be the worst IPO of 2007. Only a week after IPO it is already 10% below the IPO price.

  9. the priest

    Despite the litany of naysayer shorters orbitz has a firm hold of the online travel market that is growing at…a pretty good clip?

  10. chughes

    Kevin, this is an excellent article and hopefully helpful to risky investors crazy enough to buy this piece of crap stock. It’s amazing that despite all the shenanigans that were exposed in the stock market meltdown seen a few years ago that this company would even be given the green light to be allowed to peddle this garbage to the market. I hope the word gets out on this dog!

  11. When I grow up maybe I will have a clone. Great piece, Om. I like a hot market. And some of my best friends are in private equity. But you called it, it will take some gullible investors to make this one happen.

  12. Bloggers are worthless as financial advisors. Until Peter Lynch or Warren Buffett start blogging, it’s better to call your portfolio manager or use a dartboard/Magic 8-Ball.