Travelzoo (TZOO) Coverage Launch: $30.38 Trefis Price Estimate

Travelzoo (NASDAQ: TZOO) is a travel deals publisher that provides virtual platforms including Travelzoo websites as well as publications like newsletters and e-mail alerts to small businesses, travel and entertainment companies to help them advertise their offers. With over 24 million subscribers in North America, Europe, and Asia Pacific, Travelzoo publishes deals from more than 2,000 travel, entertainment and local companies and is the purported largest publisher of travel, entertainment and local deals.

By negotiating high quality value deals, Travelzoo is able to attract a large number of subscribers for its publications. The expanded reach in turn helps it to increase the number of businesses enrolled as they seek to benefit from access to Travelzoo’s global audience and solutions like real-time listings of special offers, real-time updates and performance reports.Travelzoo has to fight for ad dollars with various large tech companies including the likes of  Google (NASDAQ:GOOG) and  Yahoo (NASDAQ:YHOO). The firm also competes with meta-search engine providers such as Kayak. With the entry into the Local Deals space, Travelzoo now has a formidable competitor in the deal giant Groupon (NASDAQ:GRPN).

We have a Trefis price estimate of $30.38 for Travelzoo, which represents about 10% premium to the market price.

See full analysis for Travelzoo

Ads on Travelzoo Websites, Alerts and Newletters are 65% of Travelzoo’s value

We’ve broken down our analysis of  Travelzoo into three main business segments:

1. Advertising

2. Local Deals

3. Search Businesses – SuperSearch and Fly.com

Advertising Revenue Growth Driven by U.S. and European Markets

Travelzoo derives advertising revenues from the sale of advertising in North America and Europe on the Travelzoo website, the Travelzoo Top 20 e-mail newsletter, Newsflash and from the Travelzoo Network. With such a large number of publishing forums, the company benefits from a broad subscriber base. The company has more opportunities for subscriber growth and ad rate increases in Europe as the business is less developed than North America. There are approximately 25 million subscribers in North America compared to 9 million in Europe.

The annual AdEx survey released at IAB Europe’s Interact Congress held in June this year shows that the online advertising market re-accelerated at a growth rate of 15.3 per cent in 2010 after a slowdown to 4.5 per cent in 2009. The biggest online markets by ad spend are the UK, Germany, France, Netherlands, Italy and Spain respectively. Together, the top six account for almost three quarters (74 per cent) of the total market. Travelzoo’s European operations include its businesses in France, Germany, Spain, and the U.K, and thereby enable it to leverage the online advertising growth in Europe through presence in the most attractive markets in the region.

Additionally, Travelzoo continues to focus on developing new and innovative products to supplement its core business of travel. The firm launched a sophisticated airfare search engine fly.com in February of 2009. Travelzoo recognizes fly.com as a meta-search opportunity with attractive economics and great synergies with Travelzoo core travel business like Top 20 newsletter. The company sees particular opportunity in cross promoting deal content between Travelzoo and fly.com while also aiding in making the deal content better.

Differentiation and Local Offers Experience Provide Competitive Advantage

The local deals business for Travelzoo which was launched in the 3rd quarter of 2010 has been a significant revenue generating opportunity for the firm. Travelzoo is differentiating itself from group-buying sites like Groupon, Living Social and AOL’s Wow.com by leveraging Travelzoo’s existing hotel relationships and offering higher-end deals, often for hotel spa’s and hotel restaurants.

The local deals business derives advantages from Travelzoo’s subscriber base for other products like the Top 20 Newsletter by providing it access to big mailing lists as well as serving as a great fit given its trained sales force who have prior experience in selling local offers. This helps Travelzoo’s local deals compete with larger competitors like Groupon right at an early stage.

Understand How a Company’s Products Impact its Stock Price at Trefis