AP News

Kayak shares fall on spending, overseas worries

NEW YORK (AP) — A day after Kayak Software Corp. reported better-than-expected second-quarter results, investors focused on spending worries overseas and drove shares lower Thursday.

THE SPARK: The website operator said its second-quarter net income almost doubled as more people used its website to book trips. But Kayak, which offers users a look at a range of travel booking sites at once, also said it is expanding overseas. That's good news in boom times, but it's a hard pill to swallow for investors when the global economy remains weak. Kayak's competitors have also said they may be hurt by further weakness in Europe.

Revenue from international operations rose 52 percent in the second quarter. Kayak now derives about 20 percent of its sales overseas, but it says that it still doesn't have as much exposure as other online travel agencies.

THE BIG PICTURE: The travel industry, in general, has remained strong as concerns mounted about the weakening global economy. But recent warnings, including those from major hotel chains like Marriott International Inc., have suggested that slowing international growth is starting to cause travelers to rethink their plans. Online travel companies are also being hurt by U.S. airlines' continued effort to keep costs low. Airlines are cutting flights to save money, which means fewer seats for travel bookers to sell.

THE ANALYSIS: Stifel Nicolaus analyst Jordan Rohan said he's concerned that increased marketing costs will put pressure on Kayak's sales margins through the end of the year. Higher marketing spending, which is coinciding with its business expansion, is causing earnings to remain stable instead of increasing, Rohan noted.

In the long run, though, "trends at the company make us excited," he said. But Rohan kept a "Hold" rating on the stock, urging investors to stay on the sidelines until the price declines.

SHARE ACTION: After gaining 11 percent before its results were released Thursday evening, shares fell $1.17, or 3.8 percent on Friday to hit $29.63. Kayak is down 15 percent since its strong initial public offering last month.

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