How Europe Can Help Travelzoo Drive Strong Growth In Its Business

Travelzoo (NASDAQ:TZOO) is a leading global Internet media company with over 26 million subscribers. It provides travel and entertainment companies, as well as small businesses, the ability to efficiently reach out to consumers to sell their services and products. Apart from the Travelzoo websites, the company has several publications and newsletters across the globe. In addition, Travelzoo operates Fly.com, a travel search engine and a social commerce business (Local Deals), which provides its subscribers with high quality deals for restaurants, spas, shows, concert events. etc. ^[1]

Travelzoo’s services are available in North America, Europe and Asia-Pacific. In Asia-Pacific, its business is operated by Travelzoo (Asia) Ltd. and Travelzoo Japan K.K., under a license agreement. Travelzoo does not have any significant ongoing involvement with the operations of the Asia Pacific segment since its sale to Azzurro Capital Inc. in 2009.

The majority of Travelzoo’s revenues come from North America. The European market contributes 29% of the total revenues, more than double compared to its contribution in 2008. With an expanding travel market, combined with an increasing use of the Internet for buying travel products, we believe Europe offers further growth opportunity for Travelzoo:

1. Increasing penetration of the Internet in the rapidly growing travel market: Despite the debt crisis in the region, Europe is one of the fastest growing travel markets in the world. eMarketer estimates that travel sales in Europe increased from $292 billion in 2010 to $324 billion in 2013. The percentage of online travel sales increased from about 40% to 46% during the same period. Total travel sales in Europe are expected to reach $350 billion by 2016, and the Internet is estimated to penetrate more than 50% of the market by then.

Travelzoo generates more than 75% of its revenue from its travel offerings (includes revenue from its travel publications, Getaway vouchers, and search revenue from fly.com and supersearch.com), and thus the expanding European online travel segment is an important target market for the company.

2.  Large size of online advertising market: According to data released by IAB Europe and IHS Technology, online advertising in Europe grew by 11.9% in 2013 to €27.3 billion ($36.4 billion). The U.K., Germany and France were the top three markets in the region, and had combined online ad revenues of €15.6 billion ($20.8 billion). Travelzoo’s European operations include its businesses in these three countries, enabling it to leverage growth in online advertising in some of the biggest markets in the region.

3. Need for standardization in the region’s fragmented hotel market: The hotel market in the U.S. is dominated by large hotel chains. On the other hand, the European hotel market is fragmented with smaller, independent lodgings. The fragmented nature of Europe’s hotel industry creates the need for standardization and comparison of prices, which is what Travelzoo’s search products offer its customers. On average, over three out of 10 hotel rooms in Europe are booked online, and the proportion is expected to rise in the future.

Europe’s fragmented market can additionally help in driving growth in Travelzoo’s Getaway platform. The Getaway platform was launched by Travelzoo in 2011. It is a voucher model which is gaining popularity among medium and small size hotels, as it provides them with an opportunity to stimulate incremental sales. The Getaway deals usually include a night or two at a hotel or resort within a two-hour drive or short flight from subscribers’ homes, and includes a fine-dining experience or resort credit plus other extras. Travelzoo registered 35% growth in its Getaway platform in the first quarter of the current year. We expect the growth momentum to continue in the near future as the company expands its presence in Europe.

See our full analysis of Travelzoo

We have a $21.33 price estimate for Travelzoo’s stock, which marks our valuation at a premium of over 10% to its market price.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis) | Get Trefis Technology

1. Travelzoo 10-K Filing, SEC website, 2013 [↩]