Kayak priceline deal_post

USC EMBA San Diego – 2013

Deal Analysis – Priceline’s Acquisition of Kayak

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Who are these guys?

• Founded in 1997• Online Travel Agent (OTA)• “Name Your Own Price”• William Shatner• 5,000 employees• $4,355.6M (2011 revenue)

• Commissions• Managed inventory

• Founded in 2004• Metasearch engine• 133 employees• $224.5M (2011 revenue)

• 55% from advertising• 45% from supplier &

OTA referral fees• 53% of US metasearch

queries

The DealWhat was announced?

In the later part 2012, Connecticut based online travel agency Priceline (NASDAQ:PCLN) announced its largest acquisition since it went online in 1998. The target is the fast growing Kayak (NASDAQ: KYAK), an online travel search firm that enables consumers to search for multiple travel offers from one web or mobile platform. The deal calls for: • $500 million in cash• $1.3 billion in stock• Adding up to a $1.8 billion dollar valuation of Kayak

The deal’s price tag is at least 8 times greater than any of Priceline’s previous acquisitions and is slated to close in mid 2013

What is the Story? It is about Capturing the Consumer!

Online Travel Industry$2 Trillion Industry: 9% of the Worldwide GDP

2nd largest stand-alone industry in the world

A growing middle-class in developing countries

10% per year growth

23% of travel is for leisure

77% of travel is for business

Bottom Line – This is a Big Industry

$460B =

Online Travel IndustryLets talk about the Value Chain

• Shared values• Motivation factors• Quality of life• Personal success• Friends, Movies, • TV, Internet, Ads

• Vacation Packages• Vacation Home

Rent.• Travel Packages• Resorts Packages• Friends

• Airlines• Hotel, Car• Cruises• Buses, Trains

• Sight seeing• Local Attractions• Local Bus tours• Restaurants• Shopping

Dream Research Plan Booking Fulfill Sharing

• Friends• Facebook, • Travel Blogs• Photos• Travel reviews• Emails

• Advertising $$$ • Sales pitch• Restaurants $$• Attractions

during stay• Ticket $$$• Package Deals $$$

• Google Ad-words $$• Social Media Ads $$• Targeted Ads

Online Travel IndustryThe Conversion Funnel

Goal – Improve Conversion

Rates!

How can Priceline prevent more drops

and increase conversions?

The DealRemember the Value Chain?

Dream Research Plan Booking Fulfill SharingSo who are the players in the value

chain?

Dream Research Plan Booking Fulfill Sharing

Mobile Platforms

Direct Suppliers

Travel Information Websites

Capture more of the Value Chain

Capture the customer early

• Direct Suppliers are winning online booking share from the OTAs

• Metasearch enabled the direct suppliers to better reach the consumer and bypass the OTAs

• Priceline purchasing Kayak, keeps the direct suppliers encroachment in check

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StrategyWhat is Priceline getting for $1.8B?

• Elimination of a potential competitor

• Expanding the role in the Value Chain

• Increasing “Look to Book” for Priceline

• Potential cost reduction

• Strong Platform for Growth

• More leverage over direct suppliers

Advanced Technology

Customer experiences

Highly Profitable

Offer a product buyers want at prices they demand

Positive Feedback

Loops

Strong Brand

Negotiating Power with suppliers

Cost Advantages

Economies of Scale

Customer Loyalty

International Strength

High Conversion Rates

Strong global growth in online travel

Deep Pockets For Investment

Valuable Acquisitions

Advertising Revenues

Aggregation of Demand Data

Better user experience

Financials Profit Centers of the two Companies

Financials Kayak operating costs: Every $1 in revenue costs $.75

Estimated 2012 Revenue = $314M

Financials Our Approach to the Valuation

Priceline 2012 2013 2014 2015 2016 2017 2018 2019 7 Year GrowthHotel Bookings:Market Share of Pre 3.58% 3.98% 4.18% 4.38% 4.38% 4.40% 4.42% 4.44% 24.02%Occupied Hotel Rooms Post 3.58% 4.08% 4.38% 4.61% 4.66% 4.71% 4.76% 4.80% 34.08%

Priceline 2012 2013 2014 2015 2016 2017 2018 2019 7 Year GrowthHotel Bookings: EBITDA Margins Pre 23.2% 22.7% 22.2% 21.7% 21.2% 20.7% 20.2% 19.7% -15.09%

Post 23.2% 23% 23% 23% 23% 23% 22% 22% -5.17%

Kayak 2012 2013 2014 2015 2016 2017 2018 2019 7 Year GrowthAdvertising:Online Ad Revenue Pre 180$ 195$ 208$ 221$ 232$ 243$ 256$ 268$ 48.89%per 1,000 Post 180$ 210$ 234$ 255$ 272$ 289$ 304$ 320$ 77.78%

Kayak 2012 2013 2014 2015 2016 2017 2018 2019 7 Year GrowthHotel Referral Fees:Per 1,000 Pre 321$ 385$ 424$ 458$ 490$ 519$ 550$ 583$ 81.62%Hotel Queries Post 321$ 447$ 532$ 601$ 660$ 709$ 755$ 799$ 148.91%

Priceline KayakStock Price Pre 584$ Stock Price Pre 31.0$

Current 688$ Current 39.9$ Our Value 675$ Our Value 34.8$

Maket Cap Pre 29.1 B Maket Cap Pre 1.2 BCurrent 34.3 B Current 1.5 BOur Value 33.7 B Our Value 1.2 B

Financials High level summary of our valuation

THANK YOU!

Documents

Kayak priceline deal_post