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Kayak: The next star in online travel service

Thursday - 7/26/2012, 11:51am  ET

With travel services now a job for the internet alone, there have been several Wall St. darlings in this realm.  We just saw the IPO of the most recent addition to this space, Kayak .  This young gun is throwing its hat into the ring to become the premier online travel service company.

Kayak has done a magnificent job of developing an online travel search system which consolidates hundreds of offers into a single space.  It is becoming a customer favorite with its comprehensive search capabilities and its ease of use.

It has positioned itself in an interesting place such that it is an online travel site, but it does not generate revenue from booking commissions.  Rather, its revenue comes from other OTAs, travel services, and advertising.  So there is a misconception that the big fish OTAs like Priceline , Orbitz , and Expedia are the competition.  Rather, they are the clients!

The true competitor for Kayak is TripAdvisor , and what makes this interesting competition is that they both fill a role better than the other.  TripAdvisor excels with its review content, which helps it immensely with generating traffic from social media.  It is such an effective platform, that many of the reviews found on Kayak are from TripAdvisor.

What about Kayak, where does its advantage lie?  Two words…mobile devices.  During the trade show travel for Kayak's IPO, CEO Steve Hafner spoke about Kayak's ability to do a more comprehensive search than any other group, all on a single page.  This ability plays right into the hands of mobile device users who do not have the flexibility of a PC to simultaneously search multiple sites for the most lucrative offer.  Need proof of this? Kayak is the no. 1 most downloaded mobile travel app for both iPhone and Android operating systems in the US.

From an operations perspective, Kayak runs a much more efficient model than its competition.  It is no real surprise that they are doing so well.  The management team is comprised of several of the early players in Orbitz and the board of directors has ties with both Orbitz and Expedia.   

What is truly spectacular is the company’s ability to produce a staggering amount of revenue considering it size.  Check out the revenue per employee vs. the major players in the online travel space:

Company Name

Revenue (end of Fiscal year 2011, thousands of dollars)

Revenue generated per employee

Kayak

$224,534

$1,213,700

Tripadvisor

$637,063

$537,250

Priceline

$3,540,000

$373,417

Expedia

$4,580,000

$803,508

Orbitz

$771,670

$580,639

Source: Yahoo! Finance and Kayak company website

A much more efficient model which will lead to better margins makes Kayak a more interesting play right now.  Both Kayak and Tripadvisor are seeing annual revenue growth just above 30%, but it should be taken into account that Tripadvisor did have a five year head start on Kayak .

Based solely on a revenue basis, Kayak still has a long way to go in catching up to the others, but it is clear that the market is a long ways from becoming a mature market, and the dominant position has yet to be established.

The results of the IPO on Friday were very positive and the company's vibe is looking good.  For someone looking to get in on the ground floor with a potential fast grower, then look no further. Kayak has the traits you are looking for.

This article was originally published as Kayak: The Next Star In Online Travel Serviceon Fool.com

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