Yahoo!
The five-year-old European firm has been profitable since the fourth quarter of 2002 and its revenues more than tripled last year. Kelkoo, which operates in nine countries and reaches 10% of all Internet users in the European block, claims it is the largest e-commerce service originating in Europe.
All of this makes Kelkoo a solid vehicle for Yahoo! in Europe, but the size of the deal, which Yahoo! has said is subject to undisclosed adjustments, still seems fairly eye-popping. Consider that the European company's 2003 revenue was just $53 million, meaning Yahoo! is buying Kelkoo for a whopping 11 times trailing sales.
Compare that with the online titan's 2003 purchase of Overture Services, its last major acquisition. That deal's $1.63 billion price tag amounted to less than two-and-a-half times 2002 sales. Granted, Overture's top-line rise for the first six months of 2003 was "just" 66%, following a 131% increase from 2001 to 2002. All the same, Overture was expanding off a far larger base.
Perhaps more significantly, Yahoo! used more than $1 billion in stock as currency in the Overture transaction and none in the Kelkoo buy. The Internet giant's shares are up 46% since the Overture deal was announced, although its P/E is actually lower today than it was then. Nevertheless, with shares at current levels, buying with stock seems to make a lot of sense. Yahoo!'s willingness to foot the bill by dipping into its $1.3 billion in cash and short-term investments suggests the purchase was a priority.
Comparison shopping certainly has been a driver for Yahoo! of late. The company added new search capabilities to the shopping zone last year before Christmas. The result was a "dramatic acceleration" in growth rates for referrals to Yahoo! shopping that surpassed the firm's own expectations.
The Kelkoo deal appears to be a bid to take that success across the ocean. Kelkoo's profitability also may have played into Yahoo!'s interest. Based on the admittedly very limited numbers available, Kelkoo looks like it carries pretty high margins.
At 127 times trailing earnings, Yahoo!'s stock is hardly cheap, but that hasn't stopped investors in the past. If Kelkoo can maintain its current growth rate, Yahoo! may see some upside. In that case, shareholders should petition to have an exclamation point added to the European outfit's name.
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Fool contributor Brian Gorman does not own shares of any companies mentioned here.
