NEW YORK (TheStreet) -- Priceline.com's (PCLN) $1.8 billion deal to purchase Kayak Software (KYAK) came as a big surprise, but on closer inspection looks like a smart move for the online travel giant.
The deal, which coincided with Kayak's third-quarter-earnings, was certainly a bolt out of the blue. TheStreet, for example, had scheduled a post-earnings interview with Kayak CEO Steve Hafner on Thursday, but that was abruptly cancelled by the company when news of the acquisition hit.
In typical M&A fashion, Priceline shares slipped down 1.26% to $619.99 shortly after market open on Friday, while Kayak's stock climbed 26.61% to $39.39. Analyst reaction to the deal, though, is overwhelmingly positive.
"Priceline has history of successful, forward-thinking acquisitions," wrote Stifel Nicolaus analyst Michael Purcell, in a note released on Friday, pointing to the fruitful purchases of Booking.com in 2005 and Agoda in 2007. "We see very little to be negative about from the acquisition of Kayak."Purcell pointed, in particular, to Kayak's strong organic growth, with 75% of the company's traffic coming from direct navigation that's not reliant on Google (GOOG). The analyst also sees plenty of potential for international expansion, noting that Kayak receives about 80% of its revenue from the U.S. "This leaves ample room for international growth," he wrote. "Priceline's brands, such as Booking.com can continue to populate Kayak's results and bring Kayak's offerings to the individual hotel level to further penetrate advertising budgets." Stifel Nicolaus has a buy rating and $760 price target on Priceline. Credit Suisse analyst Stephen Ju also believes that Kayak's technology story appealed to Priceline, adding that the company's mobile app is one of the most popular travel sector apps for Apple's (AAPL) iOS operating system. The analyst rated Priceline outperform with an $838 price target. One of the world's largest online travel agents, Priceline is well positioned for the mobile boom, something which can only be helped by the acquisition of Kayak. Priceline does not break out its mobile revenue, but has acknowledged that it's a growing part of its business. In a note earlier this year, Deutsche Bank said that in 2011 6% to 7% of bookings for Priceline's Booking.com division came from the mobile space.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV