Did Facebook Ruin the IPO Party for Everyone Else?

KayakFacebook's (FB) belly flop of an IPO continues to make waves.

The Wall Street Journal is reporting that Kayak -- the popular travel website that was supposed to be the next major dot-com to go public -- has been slow to get its investor roadshow going.

Kayak has all of the attributes that one would like to see in a debutante. The site that scours a multitude of sources to deliver the best fares and rates for flights, hotel rooms, and related offerings is profitable. Revenue climbed 32% to $224.5 million last year. A whopping 310 million travel search requests were submitted through Kayak during this year's first quarter, 45% ahead of the site's popularity a year earlier.

However, Facebook is a hard act to follow -- and not in a good way.

IPO Friend Request Denied

It's been two weeks since the ballyhooed Facebook debut failed on many different levels.

On the surface, it was a case of sheer underwriter greed. Why should a company that earned $1 billion last year be worth $104 billion out of the gate?

However, the actual exchange made things worse. Nasdaq (NDAQ) mistakes left a lot of buyers unsure if they had been successful in purchasing shares -- and by the time many received their confirmations, the stock was already trading lower. The exchange halts of Facebook sympathy play Zynga (ZNGA) did little to restore the confidence of individual investors.

If investors can't trust underwriters to establish fair dot-com valuations or the exchanges to execute their orders at a time of heavy volume, why would they rally around the next hot tech company to go public?

It's not just Kayak in a holding pattern.

  • Twitter -- the most eligible private Internet company now that Facebook has gone public -- would have been a slam dunk of an IPO if the social networking giant's deal wasn't crumbling over the past two weeks.
  • LivingSocial -- Groupon's (GRPN) nearest competitor in the daily deals space -- now has two reasons to hold off on going public. Both Facebook and Groupon are trading below their initial price tags.
  • Pinterest, Foursquare, and Tumblr are just some of the online speedsters that will probably now have to wait until the bad taste that Facebook IPO's has left in the market's mouth goes away.

It's going to take a lot of time or some very strong mouthwash to make that happen.

The truth about travel portals
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Did Facebook Ruin the IPO Party for Everyone Else?

Let's go over a few of the things that Priceline, Travelocity, Expedia (EXPE), and Orbitz Worldwide (OWW) would probably prefer that you don't know.

1. No portal offers every available option. Southwest Airlines (LUV) prides itself on its low fares. And since it's one of the few major carriers that won't hit you with fees on your first two pieces of checked baggage, a great rate can get even better compared to legacy airlines charging as much as $120 for two bags.

However, you won't find Southwest in the list of vetted flight results through most portals. Southwest's low-overhead approach and desire to have passengers deal directly with the airline make it a surprising omission.

You'll never see the portals spell out which carriers are outside of their search scope. It would only encourage visitors to crack open a new browser window and check those rates directly.

Things get even more limiting when it comes to lodging. Most of the major chains are refreshingly represented, but what about small inns, cozy bed-and-breakfast establishments, and the growing number of vacation properties that are showing up on HomeAway (AWAY) or Airbnb?

2. Traditional travel sites will never tell you to wait. Microsoft's (MSFT) Bing has an interesting treat for those kicking the tires of its travel portal. Bing Travel offers what it calls Price Predictor on flight searches. It offers a five-point system that lets travelers know if rates are likely to head higher, lower, or stay the same.

Bing claims that Price Predictor will save customers over $50 on a typical round trip. A third-party audit of its predictive technology claims that the gauge is accurate about 75% of the time. Analyzing weekly pricing patterns, industry moves, and availability make it a reasonable call to make.

Why aren't all of the portals following the lead of Bing's comparison-shopping engine? Well, think about it. Portals pride themselves on what they initially called a "bookers to lookers" ratio. They want to seal the deal, before you change your mind and head off to other websites or have a change of heart with your travel plans. They would lose plenty of sales by telling travelers to wait a few days, even if they would earn gobs of trust in return.

3. Booking directly still has its advantages. Travel portals are as popular as ever. Priceline reported blowout quarterly results this week. Revenue climbed nearly 36% in its latest quarter, and earnings soared 58% higher. Through its several global websites, Priceline arranged $21.7 billion in gross bookings last year. If you think that's a lot, consider that market leader Expedia scored $29.2 billion in global gross bookings in 2011.

Both companies are growing at brisk double-digit percentage clips, so obviously it's not as if their shortcomings are scaring consumers away. Priceline's "name your own price" option offers knowledgeable travelers the ability to take a stab at a low rate. For those with a little less sense of adventure, but still open to a little mystery in exchange for a deal, Expedia's Hotwire may be just the ticket.

However, few lodging deals may be as sweet as calling up the actual hotel you wish to stay at and trying to negotiate a daily rate directly.

4. Travel portals need to up-sell you. A few years ago, smart travelers would scour the travel portals -- and comparison-shopping sites such as Kayak that may throw out wider nets -- and then head off to the actual websites to complete the transaction. Traditional portals were charging $5 to $10 in airline booking fees to offset carriers that were slashing commissions.

We're in fairer times now. Most portals have done away with booking fees. They make it easy to add frequent flier membership numbers and select seats. However, this doesn't mean that the playing fields are finally level.

Websites still have bills to pay. Start checking out after finding the perfect flight through Priceline and you'll be asked if you want to buy travel protection insurance. No? How about a place to stay? No? Will you need a car while you're away? No?
Even Kayak and Bing Travel can get in your face with third-party ads. They do link directly to travel sites, so that's a plus, but it pays to be a disciplined online travel shopper.

Bon voyage.


Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Facebook

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