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USC EMBA San Diego – 2013
Deal Analysis – Priceline’s Acquisition of Kayak
Your Logo
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
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!