Priceline (PCLN) said late Thursday that it would buy Kayak Software (KYAK) for $1.8 billion, sending shares of the smaller online travel firm soaring after the market close. Kayak also reported third-quarter earnings and revenue that handily beat expectations.
In a deal that surprised analysts and investors, Priceline will acquire Kayak for $40 a share in cash and stock. Kayak shot up 26% to 39.18 in late trading. It had fallen nearly 2% to 31.04 during the regular session.
Priceline retreated 2% late.
The prospect of stepped-up competition sent shares of Expedia (EXPE) falling 4% late, while user-generated review site TripAdvisor (TRIP) slipped 2%. Orbitz (OWW), which may be a possible takeover target, rose 13% late. Travelzoo (TZOO), which has email travel newsletters, edged higher.
"Paul English and I started Kayak eight years ago to create the best place to plan and book travel," Kayak CEO Steve Hafner said in a statement. "We're excited to join the world's premier online travel company. The Priceline Group's global reach and expertise will accelerate our growth and help us further develop as a company.
"Kayak has built a strong brand in online travel research and their track record of profitable growth is demonstrative of their popularity with consumers and value to advertisers," said Priceline President and CEO Jeffery Boyd in a statement. "Kayak also has world-class technology and a tradition of innovation in building great user interfaces across multiple platforms and devices. We believe we can be helpful with Kayak's plans to build a global online travel brand.
Both Priceline and Kayak are based in Norwalk, Conn. But Priceline went public before the dot-com bust. Kayak only held its IPO in late July at 26 a share. Kayak makes money by compiling flight, hotel and car rental deals from hundreds of travel websites, including Priceline, Expedia and Orbitz, and taking a cut from referrals. It also rakes in cash by selling online ads on Kayak.com.
Kayak reported per-share profit on a GAAP basis of 19 cents, up 5.5% from the year-earlier quarter and 6 cents above the forecast of six analysts polled by Thomson Reuters. Per-share profit minus items came in at 26 cents, unchanged from the year-earlier quarter, but beating views by 7 cents.
Q3 revenue jumped 29% to $78.6 million, beating views of $77.36 million. It was the second straight quarter of decelerating growth.
Kayak didn't give Q4 guidance and canceled a scheduled conference call to discuss Q3 results with analysts.
Kayak said it processed a total of 302 million queries across its websites and mobile applications in Q3, a 31% increase from a year earlier. Website queries rose 23% to 246 million. Mobile queries leapt 87% to 56 million.
Total revenue per thousand queries was $260 vs. $265 in Q3 2011, due to the higher mix of lower-revenue mobile queries.
Non-U.S. revenue totaled $17.3 million in Q3, a 40% increase from $12.3 million in Q3 of last year. Kayak operates websites in 18 countries outside the U.S.
Online Travel Stabilizing?
Kayak's results followed solid earnings reports from Priceline, Expedia and TripAdvisor over the past few weeks. Most analysts say online travel firms' quarterly results show that the sector is stabilizing after adverse impacts in international markets — especially in Europe.
Investment website Trefis said in an Oct. 5 report that Kayak's revenue has been growing robustly and that its growth rate will continue with some deceleration over the near term.
But it noted that the entry into online travel of big Internet players like Google (GOOG), with their substantial resources and know-how in driving traffic and sales, raised questions as to how rapidly Kayak could keep growing in the future.