Travelzoo Q1 2015 Earnings Preview: Hotel Booking Might Recover Slightly, While Other Divisions Remain Weak

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Travelzoo (NASDAQ:TZOO), the global Internet media player with a  27 million subscriber base, is slated to release its Q1 2015 earnings on April 16. Travelzoo’s platform provides travel, entertainment, and local deals from thousands of companies. In light of the consistent under performance over the last two years, the company has been striving to reposition itself to better cater to changing user demands.

Accordingly, Travelzoo launched a new hotel booking platform last year but didn’t generate enough traction. The company posted $142.1 million in revenues in 2014, reflecting a 10% year-on-year decline, due to poor performance of its Local Deals, Search and Getaway segments. [1] Due to a surge in operating expenses, Travelzoo’s EBITDA margin for 2014 declined to 12.3%, as compared to 18.1% in 2013.

Our price estimate of $11.42 for Travelzoo is at a significant premium to the current market price.

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See our full analysis of Travelzoo

Travelzoo’s Modified Hotel Booking Platform Is Expected To Show Signs Of Recovery

In Q1 2014, Travelzoo launched its hotel booking platform, which is available in beta to a select 200,000 members. Prior to the launch, Travelzoo had a platform that offered bookings for discounted travel and entertainment deals. But travelers had no flexibility to book according to their preferences, and hotel owners could only publish off-season deals as peak-season deals are seldom discounted.

With the launch of the new platform, hotels can sell full-price stays under the commission-based model and travelers can book hotels via Travelzoo’s website or through its mobile products. [2] [3] Loading last minute rates for hotels has become easier compared to the previous version that redirected users to the hotel’s website. The new platform, intended to offer greater flexibility in hotel booking and a wider range of selection, was expected to help the company in its financial turnaround.

However, in its Q4 2014 earnings call, Travelzoo management admitted that the new platform has yet to gain significant traction. The offerings were not as attractive as those of its competitors. The company intended to relaunch the platform with better content in Q1 2015. [4]

Travelzoo is striving to differentiate itself from the bigger OTAs by focusing on customer satisfaction rather than volume of transactions, according to the management. The company will continue with the existing discounted deal format (which is its unique selling point) but will also keep an eye on customers’ preferred timelines.

Travelzoo’s Future Plans Might Put It On Growth Path

Leveraging Big Data To Better Map Consumer Behavior

In its fourth quarter earnings call, Travelzoo’s management emphasized the importance of big data and advertisements in building its business. Travelzoo is one of the most prominent travel brands on social media, alongside established brands such as Expedia (NASDAQ:EXPE) and Groupon (NASDAQ:GRPN). It plans to utilize the data available via social media websites and provide more customized products.

Focus On Gaining Revenue Generating Users Rather Than Larger User Base

The company’s focus is on acquiring users who could be instrumental in revenue generation. Its products are targeted to specific customers and is not aimed at the bulk acquisition of subscribers. The company’s advertising strategy has expanded from online channels to offline media. In addition, the Travelzoo Network will continue posting deals to partner sites such as the LA Times, Yahoo Travel, and Frommers.

Search And Local Deal Segments Expected To Remain Weak

Travelzoo’s search division has performed poorly in the last few quarters on account of intense competition and the company’s delayed investment in the business. Search revenue declined by 25% year on year to ~$18 million in 2014. [5] [6] Currently, search related spending has been on a decline, which is dampening revenues for the division in the short term. However, Travelzoo plans to enhance its search platform based on changing demands.

The local deals division, which is mainly driven by a voucher format, is facing waning demand ($22 million revenue in 2014 translating to ~22% year-on-year decline). [5] [6] The company is focusing on new deal formats that better suit customers. The number of live deals  placed on websites and applications has increased along with the ease of searching for the deals. The company is continuing to look for a suitable alternative for the rigid voucher format.

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Notes:
  1. Travelzoo Reports Fourth Quarter 2014 Results, Travelzoo, January 2015 []
  2. First Quarter 2014 Performance and Growth Strategy Overview, Travelzoo Q1 2014 Presentation Slides, April 2014 []
  3. Travelzoo’s CEO Discusses Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, April 2014 []
  4. Travelzoo’s Fourth Quarter Earnings Transcript, Seeking Alpha, January 2015 []
  5. Travelzoo Form 10-Q for the period ending September 30, 2014 [] []
  6. Travelzoo Reports Fourth Quarter 2014 Results , Travelzoo, January 2015 [] []