Feeding Time at Travelzoo
Travelzoo (NAS: TZOO) wants to run with the lions again, though sometimes it sees a delicious gazelle in the mirror.
The travel deals publisher opened lower today after posting mixed quarterly results this morning. Revenue rose by a softer-than-expected 23% to $35.2 million, as weak growth through North America was lifted by strength in Europe.
Strength in Europe? You don't hear enough of that these days, but Travelzoo's overseas operations did grow three times as quickly as its 16% top-line spurt closer to home. Either way, the pros were modeling $38.7 million in revenue.
Things get markedly better on the bottom line, where net income soared 70%. Travelzoo's $0.40-a-share profit is well ahead of both the $0.35 a share that analysts were targeting and the $0.23 a share that it earned last year.
Travelzoo can't look back at last year's trip. The stock shed 40% of its value, partly on missing Wall Street's estimates in one quarter, but mostly on the collective hosing down of Groupon (NAS: GRPN) mania.
Travelzoo and dining reservations leader OpenTable (NAS: OPEN) soared in the latter half of 2010 after embracing Groupon's juicy "daily deals" model. The market cooled on the craze once they caught a glimpse of Groupon's red ink.
"We remain positive about our Local Deals business, in which we differentiate from others by focusing on higher quality deals, as well as our ability to run and grow this business profitably," CEO Chris Loughlin notes in this morning's report.
Yes, that's Travelzoo letting investors know that it's not like Groupon. That's the fashionable badge to wear these days for the handful of companies still accenting their operations by sprinkling in a flash sale here and there. OpenTable, Facebook, and Yelp are just some of the companies that hopped off the Groupon bandwagon late last year after realizing it wasn't as cost-effective and lucrative as the model appeared in theory.
Travelzoo still has a lot to prove. We can't mistake the disparity between the 23% pop on the top line and 70% surge on the bottom line as an inspiring feat of widening margins. In fact, operating profits only grew at a 22% clip as margins contracted domestically. The main reason the net income growth was so strong was a sharp reduction in the company's effective tax rate after a largely profitless experience overseas until the past few quarters. Earnings growth should increase closer to Travelzoo's top-line gains from here.
This doesn't mean that Travelzoo is toast. There are now 21.5 million willing recipients of its vetted yet sponsored travel bargain missives throughout Europe and North America. One can imagine that it's getting hit up by hungry cruise lines with ridiculous berth rates lately.
There's also something to be said about Travelzoo's net margins of 18%. Sure, the leading travel portals priceline.com (NAS: PCLN) and China's Ctrip.com (NAS: CTRP) are sporting chunkier net margins, but there's something to be said about Travelzoo's scalable publishing model that isn't at the mercy of airlines and hoteliers trying to shave the commissions being doled out to traditional booking outlets.
Travelzoo's moving in the right direction, and that's a start.
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At the time this article was published Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Travelzoo. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Motley Fool owns shares of Ctrip.com International and OpenTable.Motley Fool newsletter serviceshave recommended buying shares of OpenTable, Ctrip.com International, priceline.com, and Travelzoo. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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