Is the IPO Market Reborn?
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Kayak Software Corporation (NASDAQ: KYAK), an online travel agency company, just went public raising $91 million in its initial public offering (IPO) and easing concerns that the IPO market might be in troubled waters.
Kayak: First day of trading
(Source: Boston Globe)
Kayak first filed to get an IPO in November 2010, but then delayed going public after the disastrous open of Facebook’s (NASDAQ: FB) IPO in May, where Facebook shares tumbled from the starting share price of $38 to a low of $25 in June. Kayak is the first United States consumer Internet company to go public since the troubled open of the Facebook IPO debacle.
Eight-year-old Kayak has 185 employees, and reported revenues of $224.5 million in 2011, a 31 percent jump over the previous year. The number of queries it processed for travel information nearly doubled from 2009 to 898.5 million last year.
Kayak makes most of its revenue through referral fees when its users buy tickets online from various advertising partner websites, such as Orbitz or Travelocity, and from online advertising that appears on its site. In the expanding online travel market, Kayak has seen tremendous growth with its simple search tools for airfare prices and hotel deals. Kayak has certainly established a very strong presence in their market.
After Facebook went public, there was a 40-day period of time in which no IPOs were made in the market. Businesses who were potential IPO candidates were scared off from jumping in, so they took a “wait-and-see” approach. The drought broke on June 26, with an initial offering by EQT Midstream, a Pittsburgh, Pennsylvania energy company. A Burlington, Massachusetts software company, Exa Corporation, was the first tech company to go public after Facebook. That company was pretty successful, raising $62.5 million in a June 27 offering.
Another tech company — Palo Alto Networks Inc. (NYSE: PANW) of Santa Clara, Calif. — also had a successful IPO this week. The enterprise software maker priced its initial public offering shares at $42 on Thursday, raising $260 million. Palo Alto Network’s shares closed at $53.13 on Friday, 26 percent over the initial offering price.
Kayak is facing competition from Google Inc. (NASDAQ: GOOG) and Microsoft Corp., both of which have their own travel products. In 2010, Google made a significant acquisition for its travel product when it bought ITA Software Inc. of Cambridge in 2010 for $700 million, a software product which Kayak relies heavily upon.
Kayak used ITA Software extensively for the first four months of 2012, but its agreement with the company expires in December of 2013. This raises inquiries about Kayak's ability to enter into another agreement with ITA – or to find another replacement technology, which might be the more expensive option.
So, are IPOs making a comeback? Absolutely. Five of the eight companies that have gone public since late June are trading their stocks at more than 20 percent of their offering prices as of this writing. Facebook definitely hasn’t killed the market for IPOs. Enthusiasm and confidence among companies is rising, and in the case of the IPO market, one bad apple didn’t spoil the whole bunch. Facebook is a fiasco, but Kayak shows that if you have solid analysis, products of substance, and the actual capital to invest, then IPOs are still excellent ways to raise capital. Facebook didn’t disprove the efficiency or effectiveness of IPOs – it actually demonstrated how market competitive processes work well in the stock market to determine the net worth of companies. By Kayak taking the plunge, it gives us one more example of the reborn IPO market. The “Facebook curse” might finally be broken.
EvanBuck has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google. Motley Fool newsletter services recommend Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.