After the market closed on Wednesday, Kayak Software (KYAK) reported Q2 2012 earnings that slightly beat estimated results. Importantly this was the first earnings report since going public back on July 20. See article here.
The company proclaims itself as the best place to plan and book travel. The basic focus of the company is to enable people to easily research and compare accurate and relevant information from hundreds of other travel websites in one comprehensive, fast and intuitive display.
While revenue easily beat estimates, the adjusted earnings came in at $0.25 versus the $0.24 analyst estimate. The company only provided the GAAP earnings of $0.19 possibly providing for the stock sliding after hours.
One key focus for investors will be the growth of mobile revenue. Mobile queries nearly doubled over last year to 57M while mobile RPM (rate per thousand queries) still lags considerably below desktop RPM. See more details in the mobile monetization section.
Q2 2012 Highlights
The company reported the following highlights for Q2 2012:
- Total Revenue: $76.9 million, a 36% year-over-year increase from $56.8 million in the second quarter of 2011.
- Adjusted EBITDA: $20.6 million, an 85% year-over-year increase from $11.1 million in the second quarter of 2011.
- Net Income: $7.3 million, a 93% year-over-year increase from $3.8 million in the second quarter of 2011.
- GAAP EPS: $0.19, as compared to $0.10 in the second quarter of 2011. GAAP EPS is calculated based on GAAP net income divided by 38.6 million and 37.4 million weighted average diluted shares outstanding.
- Total Queries: We processed 304 million queries, a 33% year-over-year increase from 229 million in the second quarter of 2011. Queries refer to user requests for travel information we process through our websites and mobile applications.
- RPM: Revenue per thousand queries, or RPM, was $253, a 2% year-over-year increase from $248 in the second quarter of 2011.
- Mobile: We processed 57 million queries through our mobile applications, a 95% year-over-year increase from the second quarter of 2011. Revenue per thousand mobile queries, or mobile RPM of $46, increased 42% year-over-year from $33 in the second quarter of 2011.
The company reported record Q2 revenue with strong earnings even considering a 52% tax rate. The tax rate was hurt by losses at European operations that can't be used to offset profits elsewhere.
The company provided strong revenue guidance for Q3 of around $77M easily surpassing estimates. The provided adjusted EBITDA of $16.M though appears inline with expectations as the company ramps spending.
Unlike Priceline.com (PCLN), the company isn't seeing the cyclical impacts in European travel. Considering that Priceline.com has become a behemoth travel company with revenue expectations of over $5B for 2012, it should be no surprise that Kayak faces less cyclical pressures.
As highlighted in the IPO article, Kayak offers a more compelling option on mobile queries. When using a mobile device, travelers are more likely to focus on one website that can provide the best possible travel options as opposed to viewing multiple websites on a desktop.
The huge 97% year-over-year growth on mobile queries is a testament to the better option Kayak offers. More importantly is that the total RPM actually increased even with the impact from lower pricing for mobile. In fact, mobile pricing increased over 40% from last year, yet it only reached 15% of the website RPM.
The continued monetization of mobile will be key to the growth of this company. Not only via more queries, but the continued growth in rates. At this point, mobile only accounts for $2.6M of the revenue base yet 18% of the queries.
Table - Mobile Monetization Metrics
|Metric||Q2 2012||Q2 2011|
|Mobile Queries ('000s)||57,103||29,291|
|Website Queries ('000s)||246,936||199,457|
|Total Queries ('000s)||304,039||228,748|
|Mobile RPM (estimate)||$46||$33|
|Website RPM (estimate)||$301||$278|
* data obtained from earnings release.
The growth in mobile ad revenue highlights the growth potential in the mobile advertising sector where Millennial Media (MM) and Velti (VELT) provide some interesting investment options. Companies such as Kayak make it clear that mobile traffic will continue to be monetized at higher rates even as some major internet companies struggle.
Along with mobile travel, the expansion into international markets will be key to the growth going forward. The company has recently opened markets in Brazil, Russia, Poland, and Portugal. It now operates in 18 markets around the world leaving numerous locations for expansion.
International revenue leapt 52% to reach $15M in the quarter.
Kayak offers significant growth in mobile traffic and international expansion, yet some trends are likely to cause pause among investors. As mobile continues ramping, investors focused on the RPM rates might be disappointed as the RPM totals could eventually show declines even as mobile RPM rises. Also, more expansion into international locations will pressure earnings as the new locations initially absorb losses.
Unlike a lot of other IPOs, Kayak provides solid profits and does not require a massive sales staff for growth. The question remains whether the current price is attractive at roughly 29x forward earnings.
Investors might be wise to buy this stock any dips going forward.
Disclosure: I am long VELT. Please consult your investment advisor before making any investment decisions.