Travelzoo Displayed Promising Signs Of Recovery In Q1 2015

Travelzoo (NASDAQ: TZOO), the global Internet media player, experienced a three month high 32% increase in its stock price after the release of its Q1 2015 earnings results on April 16th. Although Travelzoo still continued with its year-on-year losses, the company witnessed a 16% increase in its revenues over the previous quarter. It posted $36.5 million in revenues, representing a 9% year-on-year decline. This was due to a slump in Local Deals and Getaway sales coupled with the negative impact of a strong U.S. dollar versus the Euro. Travelzoo’s earnings per share (EPS) for the quarter was $0.13 as against $0.31 in Q1 2014. The EPS was impacted by the drop in revenue coupled and increased spending on product development and members acquisition. ^[1]

The company witnessed growth in its Search segment for the first time in over two years. The Local Deals segment also reflected promising growth lately. Travelzoo’s hotel booking platform is beefing up with quality content to roll out to a larger audience.

For the second quarter of 2015, the company expects the revenue declines to continue due to the product and service transitions and unfavorable FX impacts. The company should continue investing in product development and member acquisition. Travelzoo is focusing on acquiring the right set of users, i.e., members who will genuinely help in revenue generation. Hence it is targeting its products to a particular audience and is not aiming at bulk acquisition of subscribers. ^[2]

Our price estimate of $11 for Travelzoo is at a discount to the current market price. We are in the process of updating our valuation for the company.

See our full analysis of Travelzoo

Hotel Booking Platform Is Gearing Up For Further Rollout

Travelzoo brought about a transformation in its previous business model with its hotel booking website (launched in Q1  2014). The hotel booking platform (now available in the beta version to its 200,000 selected U.S. based subscribers) enables users to book hotels directly via Travelzoo’s website or through mobile platforms, allowing suppliers to promote deals in a more flexible manner.  Also, earlier, Travelzoo offered a platform to book discounted travel and entertainment deals. The new platform allows hotels to sell full-priced stays under the commission based model.

Travelzoo’s Unique Selling Points

• According to Travelzoo’s management, the quality of offering on the hotel platform differentiated Travelzoo from the bigger players on the OTA space.
• Travelzoo will continue with the existing discounted deal format but will also keep an eye on the customers’ preferred timelines.
• Earlier, Travelzoo’s 25 million users could access attractive deals only for places nearby to them. The new booking platform will enable Travelzoo’s entire subscriber base to access all the deals on Travelzoo’s website, almost simultaneously.

After observing a lack of traction for the new platform over the last few quarters, Travelzoo relaunched the hotel booking platform at the end of February 2015, with content pertaining to 6 destinations including New York, Las Vegas, Chicago. The current focus is on making the deals easy to find at any point in time and through any device. The promotional activities have not yet started in full swing as the platform is undergoing product adjustments and content enhancements. ^[2]

Search Segment Displayed Revenue Growth After Almost Two Years

Travelzoo’s Search division performed poorly in the last few quarters on account of intense competition and the company’s delayed investment in the business. Given the weak results of 2013 (11% decline), the management reassessed the Search segment. Though marketing created the buzz for users to come and explore SuperSearch or Fly.com, that didn’t generate enough value per customer or repeat customers. Hence Travelzoo curtailed its Search related spending which further dampened revenues from the division.

In Q1 2015, Travelzoo observed better monetization of its Search traffic, and hence has decided to slightly increase its spend on the Search products, i.e., SuperSearch and Fly.com. There was around 4% year-on-year growth in Search revenue to ~$5.1 million for the first quarter of 2015. ^[2]

Local Deals Segment Lately Showed Signs Of Recovery

The Local Deals division, which is mainly driven by a voucher format, faced waning demand over several quarters. The Local Deals posted revenues of $5.7 million in Q1 2015 translating to ~19% year-on-year decline.

For this segment, Travelzoo is trying to transform its supply-based push strategy into a demand-based pull strategy. Currently, the number of live deals  placed on its websites and applications had increased, along with the ease of searching for the deals. The company is still on the lookout for a suitable alternative for the rigid voucher format. Local Deals’ recent March 2015 performance had been promising after the removal of a few weak suppliers from the platform. ^[2]

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1. First Quarter 2015 Performance and Growth Strategy Overview, Travelzoo Investor Relations, April 16, 2015 [↩]
2. Travelzoo’s Q1 2015 Earnings Call Transcript, Seeking Alpha, April 16, 2015 [↩] [↩] [↩] [↩]