Kayak Shows Rapid User Growth But Google Remains A Big Threat

Kayak (NASDAQ:KYAK) is a travel search company which aims to offer travel suppliers and OTAs, such as Expedia (NASDAQ:EXPE) and Priceline (NASDAQ:PCLN), an efficient channel to sell their products and services to potential users. Kayak provides travel buyers a one-stop research solution to best fares along with travel management tools and services such as flight status updates, pricing alerts and itinerary management.

The company’s top line has been growing at a robust rate, and we believe that the growth rate will continue, albeit at a slower pace, for the rest of our forecast period. However, with the entry of large internet search engines such as Google (NASDAQ:GOOG) (which has substantial resources and expertise in developing online commerce and facilitating internet traffic) in the online travel market, the future growth of Kayak and other related companies has become questionable.

Kayak primarily has two revenue streams: (i) revenues from referrals to travel suppliers and OTAs, and (ii) ad revenues from advertising placements on its websites and mobile applications. With the growing popularity of meta search engines from the likes of Google and Microsoft’s “Bing Travel”, both of these revenue streams could be in  jeopardy.

While the rapid growth in Kayak’s user base and increase in its total queries point towards a promising future, the company’s growth could be restricted by the Google-ITA deal. However, we feel that the negative impact might not be as adverse as originally anticipated. The US Department of Justice kept certain clauses before giving a go-ahead to the acquisition, which ensure that Google does not completely kill the competition among providers of comparative flight search websites in the US. (Read Related Articles: How Big A Threat Is Google To Kayak’s Business? and Kayak’s Valuation Significantly Impacted By Google-ITA Deal)

See Our Complete analysis for Kayak’s stock here

Rapid Growth In Number Of Unique Visitors

As per Site Analytics, the total number of unique users visiting Kayak’s website currently stand at 10.5 million, a close to 25% increase from 8.4 million visitors a year ago. While the number may be below other companies such as Expedia, Trip Advisor and Priceline, the y-o-y growth rate is much higher when compared to other companies in the industry.

Source: http://siteanalytics.compete.com/

Last year, Kayak launched its own booking path which enables its users to complete their booking transactions without leaving the Kayak platform. The company presently has 8 collaborative partners for the direct booking path, which contributed 11% to the total revenue in the last quarter. However, as Kayak gets more partners on board this scheme, we expect to see a gradual increase in the percentage contribution. Thus, we believe that Kayak has the potential to further expand its user base in the future.

Continuous Increase In Total Queries

The total number of queries include queries received over Kayak’s websites and mobile applications. Kayak has witnessed a robust growth in the total number of queries processed by it over the years, and we estimate the trend to continue going forward. However, keeping in mind the growing demand for mobile devices, we expect to see a higher contribution from mobile queries in the years ahead.

Source: Trefis

Currently queries received via Kayak’s mobile application contribute to around 14% to the total search queries received by the company. In Q2 2012, Kayak registered a 95% y-o-y increase by processing 57 million queries via its mobile applications. Additionally, Kayak’s mobile applications have been downloaded more than 17 million times since 2009 and the company has registered 5.3 million downloads so far this year.

Kayak believes that it has a more loyal mobile user base as compared to the PC user base. With a growing adoption of mobile devices around the world, we expect the mobile share of Kayak’s total queries to go up to 24% by the end of our forecast period.

Our current estimate of $26 for Kayak is at a discount of just under 20% to the current market price.

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