Follow The Money: Why Priceline Bought Kayak

Last week, Priceline.com acquired Kayak for $1.8 billion. That’s more than twice what Google paid for ITA back in 2010. Why did Priceline make this move? And why now? Priceline acquired Kayak for $40 a share, about $500 million in cash, $1 billion in Priceline equity, and about $300 million in stock options. Kayak got a premium price — a 29 percent premium, to be exact — from Priceline considering that, on the day of its acquisition, Kayak closed at roughly $31 a share. That’s about 54 percent higher than where Kayak was on IPO day, at $26 a share. This no doubt added to Priceline’s impression that Kayak was on the way up and that it was worth paying the big bucks to save it from having to deal with a strong competitor down the road. While the big numbers are eye-catching, Kayak hasn’t always been in such an enviable position. The company first filed to go public in late 2010 and went public in July of this year — a long road to the public markets by any standard — and one that saw Kayak posting a net loss as recently as a year ago. It finally turned that around in the first quarter of this year, posting a Q1 net income of $4.1 million and grew revenue by 39 percent to $73.3 million. Those numbers have been on the rise ever since, as Kayak posted its Q3 earnings on the same day that it was acquired by Priceline, with net income rising to $8 million, up from 14 percent from $7 million in Q3 2011. As we wrote in July after the company’s IPO, a big part of Kayak’s resurgence has been its focus on mobile. In its Q3 report, Kayak showed that its mobile revenue per thousand queries (RPM) had increased 63 percent compared to the same quarter in 2011. So having seen 56 million mobile queries during the quarter, Kayak saw approximately $3.5 million in mobile revenue, which may not seem like a lot but is a large share of the company’s overall revenues. On November 15th, Kayak announced that it had reached one billion queries in the first ten months of this year. This was significant for the company, because it first reached the billion-queries milestone in 2008 — after four years. It then took the company another three years to compile two billion

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