Buried in Kayak’s registration statement for its intended initial pubic offering are the background numbers which reveal that Kayak believes its valuation is around $857 million.
That number is important because the viability of the IPO will hinge to a large degree on whether Wall Street has enough confidence in Kayak to buy into that valuation.
Based on Kayak’s reported net income of just $6.2 million for the first nine months of 2010 and the difficult competitive dynamics that a Google-ITA Software travel metasearch product could deliver, one financial analyst said he is perplexed at Kayak’s IPO timing and strategy, and expressed doubt about whether Kayak’s proposed public offering will ever see the light of day.
But, another financial analyst argued that the valuation has credibility based on Kayak's international growth potential.
Both analysts declined to be identified.
Kayak operates 14 websites outside the U.S. and through the first nine months of 2010 took in just 7% of its revenue from international operations. Kayak concedes that its U.K. efforts, in particular, have been a slow-go.
However, based on Kayak's acquisition of Swoodoo in Germany in May 2010, Kayak doubled its international revenue to around $4 million in the third quarter of 2010 compared with the year-earlier period.
"We believe that this strategic acquisition will strengthen our presence and team in Europe," Kayak states. "While we expect our revenues from international operations to increase at a rate faster than our U.S. operations, we do not expect our international operations to contribute to our profits in the near term as we plan to continue to invest in our international team and brand."
Of course, much of the detail of the Kayak IPO has yet to be revealed. As is routine, Kayak has not yet priced its proposed IPO or indicated what percentage of the company it plans to offer to the public. And, the $50 million stated amount of the proposed IPO is considered just a placeholder number.
But, the registration statement filed with the Securities and Exchange Commission does detail what Kayak deems is its valuation.
Kayak sets the fair value of its common stock to be around $25.81 per share. Assuming 33.2 million total shares, that would imply a valuation of nearly $857 million.
Kayak estimated its valuation to determine the value of employee stock options.
To date, Kayak has raised some $223 million in funding from private investors.
It will be up to the Wall Street high rollers to determine whether Kayak's $857 million valuation has credibility.