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Kayak shares rise 16 percent in trading debut

Kayak Software is setting sail on new seas.

On Friday, the Norwalk, Conn.-based company behind the online travel website, Kayak.com, went public on the Nasdaq stock market, with shares immediately trading up 16 percent and rising.

Kayak offered 3.5 million shares, initially priced at $26, raising $91 million in its IPO. The company is listed under the ticker symbol ‘‘KYAK.’’

The move is expected to lead to site enhancements and possible acquisitions but is also occurring at a time when the market is still feeling the chill from Facebook’s fumbled IPO and the online travel industry is attracting new players such as Google and Apple and facing major changes.

“I expect we’ll see some new commercial efforts after the IPO,” said Henry Harteveldt, a travel industry analyst with Atmosphere Research Group. “They may do work to improve hotel search or expand into more markets outside the U.S.”

The IPO has been tied up at the dock, so to speak, for almost two years. Originally announced in November 2010, the offering was put on hold in the months after Google bought ITA Software, a move that sent shockwaves throughout the travel industry.

Although mostly unknown to the general public, ITA provides the airfare-search technology that powers dozens of online sites, including Bing, Orbitz, TripAdvisor and Kayak. Facing the prospect of a new 800-pound Google-gorilla in the industry, Kayak’s IPO took a back seat to pro-competition advocacy and new-product development.

“The delay was a good thing,” said Ryan Williams, director of client services, travel, for Compete, a “digital intelligence” company. “Ever since Google stuck its stake in the sand, they’ve been rolling out product enhancements.”

Among the improvements: promoting Hacker Fares that combine two one-way flights for potential savings; letting customers book hotels directly on Kayak, rather than sending them to supplier sites; and incorporating user reviews from TripAdvisor and other sources.

Even so, there are risks involved in going public. On the market front, investors may still be wary in the wake of high-profile IPOs that have fallen flat. Shares of Facebook, for example, are down almost 24 percent, to $29, two months after its May IPO, while Groupon has shed more than 60 percent of its value since November.

At the same time, the evolving landscape in online travel presents its own challenges. According to Kayak’s SEC filing, the company currently gets 39 percent of its airfare search results directly from ITA Software and another 16 percent from other companies that also utilize the Google-owned technology. The company’s agreement with ITA expires in December 2013.

As a result, little is expected to change on the back-end anytime soon, although it could in the long-term. “Kayak has rights to the existing technology but not necessarily to new products,” said Harteveldt. “If Google develops new functionalities, they might not be available or they could negotiate for higher rates.”

The company’s ace in the hole may ultimately be those travelers who appreciate its ability to aggregate results from hundreds of other sites. Between April and June, the company handled 304 million queries, up 33 percent from the previous year, and earned revenues of around $75 million. Total queries last year were just shy of 900 million.

The company’s “Search One and Done” philosophy clearly resonates with certain travelers and an influx of new capital may enable it to tweak that focus to provide results that take into account users’ personal preferences and previous purchases.  

“They already customize results with check boxes and filters,” said Harteveldt. “This may allow them to explore ways to personalize them even more. It’s not about presenting the most information, but rather, the most useful.”

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