Travelzoo Q2 2015 Earnings: Recovery Set In Motion Though Losses Will Continue In The Short Run

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In its Q2 2015 earnings, Travelzoo posted $34.1 million in revenues, representing an 8% year-on-year decline. In line with the past few quarters, Travelzoo’s revenue decline continued due to a slowdown in demand for Local Deals and Getaway sales, delayed revenue recognition under its new hotel platform, and adverse FX impact (which resulted in around a 5% revenue decline). Though Travelzoo is recovering its performance, the losses continue due to the transitioning phase of its products and due to the expenses incurred by the company for its product enhancement and subscriber acquisition. The company increased its marketing spending to the tune of $3.5 million in Q2 2015. As a result, Travelzoo’s subscriber base increased by 4% on a year-over-year basis to around 25 million and its social media followers and mobile application downloads witnessed growth. [1]

Travelzoo expects the year-on-year decline in revenues to continue in Q3 2015  on account of the ongoing transition of its products and services, loss of certain vacation package revenues, and adverse FX impacts. The company plans on an additional $500,000 quarter-over-quarter spend on its product development, member acquisition, and marketing costs. Consequently, it expects operating losses to continue in Q3 2015. [2]

Our price estimate of $10.34 for Travelzoo is almost in line with the current market price. We are in the process of updating our price estimates for Travelzoo.

See our full analysis of Travelzoo

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Travelzoo’s Hotel Platform Differs From That Of A Regular OTA 

In Q1 2014, Travelzoo’s erstwhile push based hotel offerings underwent a transformation to a pull based hotel booking platform. The hotel booking platform is currently available in the beta version to its 200,000 selected U.S. based subscribers. The platform 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 solely focused on discounted travel and entertainment deals. In this platform, hoteliers are allowed to sell full-priced stays under a commission based model.

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 six destinations including New York, Las Vegas, and Chicago. The current focus is on making the deals easy to find at any point in time and through any device. [3]

The hotel platform started receiving positive response from Q1 2015 and as we forecasted the improvement continued into the second quarter, as well. The hotel search and searching for deals for specific dates have witnessed significant growth on the platform. The company is encouraged by the hotel platform’s reception and conversion rates in North America and intends to set out a global roll-out, soon.

Travelzoo’s new platform puts it in direct competition with online travel giants such as Expedia (NASDAQ:EXPE) and Priceline (NASDAQ:PCLN). However, Travelzoo maintains that its platform has some unique advantages which are going to lure customers. The company maintains that unlike the traditional OTAs, Travelzoo is predominantly a dealers business and hence when the deal is sent out, there is a period of around 45 days or 60 days to avail of the deal. This is in contrast to OTAs who only provide products as per consumer’s demand. Hence, along with the demand based inventories, Travelzoo will continue offering its deals as well. This is a unique model among the prominent players in the travel industry, now.

Also, according to Travelzoo’s management, the superior quality of offerings on its hotel platform will differentiate Travelzoo from the bigger players in the OTA space. Finally, earlier, Travelzoo’s 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.

  

 Two Key Areas Of Focus

Currently, Travelzoo’s two main strategies are:

  • Subscriber Acquisition: The company has added 2 million new subscribers in the past two quarters. Travelzoo is stressing the quality of subscribers, who would be pivotal in generating business for the company, rather than focusing on gaining a huge number of members.

Subscribers

  • Product Enhancements: Travelzoo wants subscribers to find deals they are specifically looking for. Earlier, the company followed a push strategy where the members found Travelzoo’s deals through emails and social media. Now, the company wishes to help members when they are actively searching for hotels on specific dates and locations. Travelzoo expects this evolved strategy will result in higher revenues per members.

Revenue Per Subscribers

The Pull-Based Purchases Increased Under Local Deals

The company had noticed a change in consumer preference in this segment towards pull or demand based products, over push or supply based products. Hence, along with increasing the number of live deals on its platform, Travelzoo is focusing on products that will facilitate users to find deals closer to their locations. The company is still experimenting in finding an alternative to its rigid voucher format which is slowing down the Local Deals sales. The pull-based purchases are increasing on a year-on-year basis as a percentage of total deals. Travelzoo’s Local Deals division posted revenues of $6.6 million in Q2 2015, translating to around an 18% year-on-year decline. [1] [2]

 

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Notes:
  1. Second Quarter 2015 Performance and Growth Strategy Overview, Travelzoo Investor Relations, July 16, 2015 [] []
  2. Travelzoo’s Q2 2015 Earnings Call Transcript, Seeking Alpha, July 16, 2015 [] []
  3. Travelzoo’s Q1 2015 Earnings Call Transcript, Seeking Alpha, April 16, 2015 []