Travelzoo (NASDAQ:TZOO) is a leading global Internet media company that enables travel and entertainment companies as well as small businesses to efficiently reach out to consumers to sell their products and services. Travelzoo does not hold any inventory but charges its customers a listing fee for advertising on its websites. Apart from the Travelzoo websites, the company has several publications and newsletters across the globe. In addition, it operates travel search engine Fly.com and social commerce business Local Deals which provides its subscribers with high quality deals for restaurants, spas, shows, concert events, etc.
The technology revolution of the 90’s led to a considerable shift in the consumer base from offline to online platforms, which benefited Internet companies such as Travelzoo. The industry is now in the midst of another transition phase with a rising number of users shifting from personal computers to mobile devices to access the web. Travelzoo launched its mobile application for Apple and Android devices in 2011, offering the “Top 20″ and “Local Deals” services along with geo-location tools to mobile users.
Travelzoo now receives over 30% of its traffic via mobile devices compared to 10% in 2011.   Expecting the proportion to further rise in the future, the company is focused on developing new mobile products to stay in line with changing customer preferences. It launched its second generation iPhone application last month that aims to provide its on-the-go customers easier access to company products.
The mobile user base is expanding at a rapid pace. If Internet companies fail to keep up with innovation in this space, they face the risk of losing out a growing user base of travel and deal bookings via mobile devices. Travelzoo intends to transform the entire product organization to a mobile first organization this year, which we believe will accelerate long-term growth opportunities for the company.
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Second-Generation iPhone Application
The re-designed iPhone application brings the “Today Best Deals” and “Top 20″ to the center stage and offers a much improved visual appeal. Sourcing deals within close proximity to the user, the application saves time and enhances the overall experience of mobile users by enabling them to instantly access nearby deals from spas, restaurants, hotels at the click of a button. With over 1.5 million downloads for its existing iPhone and Android applications so far, Travelzoo is witnessing strong adoption of the its brand on mobile. We expect the new application to further drive its mobile traffic in the future.
The Mobile Platform Offers Huge Long-Term Growth Opportunities
With the rapid adoption of smartphones and tablets, mobile devices are increasingly becoming the preferred and more convenient option for online searches and shopping. eMarketer estimates the overall spending on mobile advertising in the US, including display, search and messaging-based ads served to mobile phones and tablets, to have increased to $4 billion in 2012, representing 180% growth compared to 2011. It forecast mobile advertising in the US to rise to $7.19 billion in 2013 and reach $21 billion by 2016. 
Travelzoo derives a majority of its revenue from advertising and more than 75% of its business is concentrated in North America.
The company aims to create easy-to-use mobile applications that help advertisers extend their reach by delivering relevant and useful ads to users on the go. Enhancing and developing new mobile applications and focusing on improving conversion rates on its mobile platform are some of the key strategic areas for Travelzoo.
Our price estimate of $23 for Travelzo0 is almost in line with the current market price.Notes:
- Travelzoo dives into mobile, brings deals to travelers on-the-go, Tnooz, July 12, 2011 [↩]
- Travelzoo Surpasses 26 Million Subscribers Worldwide, PR Newswire, January 30, 2013 [↩]
- US Mobile Advertising Spending, 2010-2016, e-Strategy Trends, December 18, 2012 [↩]