Travelzoo Seems To Be On A Path Of Sustainable Recovery With Its Revamped Offerings, Hotel Platform, And Strategic Initiatives

Travelzoo (NASDAQ: TZOO), the global Internet media player, released its Q3 2015 earnings on November 3rd. The company is on the path of gradual recovery and it seems that the new demand-based offerings (as opposed to rigid vouchers and push-based deals) and the hotel booking platform are the two main pillars boosting growth. In Q3 2015, Travelzoo displayed a 7% year-over-year decline (2% decline in constant currency) in revenue to $34 million. In constant currency terms, Travelzoo witnessed a 7% and 8% year-over-year growth of revenues in Asia Pacific and Europe, respectively. Travelzoo’s non-GAAP earnings per share was $0.03, compared to a loss of $0.03 in Q3 2014. The company’s member base increased to 28 million after the acquisition of the Asia Pacific business. The Asia Pacific (APAC) business is expected to help the company in tapping the China outbound travel market.  Though the numbers don’t look too impressive in absolute terms, the company is indeed improving its performance as evident by its key financial metrics, gradually over the last 12 months (in terms of constant currency). ^{[1] [2]}

(Source: Travelzoo Third Quarter 2015 Performance and Growth Strategy Overview)

Travelzoo expects the year-on-year decline in revenue to persist across most of its segments in the fourth quarter as well. This is primarily because of the company’s transitioning to more demand based offerings rather than the push-based products and services. Additionally, the fourth quarter is a seasonally slower quarter. The company will continue investing in its product developments and expects an additional $500,000 expense towards that end, and also expects to incur an incremental $400,000 towards professional services. Travelzoo will also increase its investments in China. ^[1]

We will shortly update our price estimate of $9.30 for Travelzoo.

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 Travelzoo’s Region-wise Performance

It is noteworthy that Travelzoo’s change in the way it does business, specifically stressing on the demand or pull-based offerings, rather than its erstwhile push-based deals, coupled with its new hotel booking platform (introduced in 2014) have been working in the company’s favor. The company is indeed seeing an improvement in performance and that, too, after increasing spending to increase on product development and member acquisition initiatives. In Q3, constant currency revenue growth was evident in Asia, Europe, and Canada. The main reasons for the growth were due to the increased travel revenue driven by a growth in demand for airlines and vacation package revenue. The local deals revenue showed a decline across all the regions. However, its biggest market, the U.S. is yet to recover on account of certain product changes that is taking place in the region. The company suffered from around $1.8 million in currency erosion due to the adverse exchange rate impact. ^[1]

(Source: Travelzoo Third Quarter 2015 Performance and Growth Strategy Overview)

Travelzoo’s North American business suffered from a 9% constant currency decline in revenues to around $21 million. The main reasons for this decline were: 1. lower voucher sales for local deals as the company is phasing out its push-based deals to focus on the pull-based deals, 2. lower spend on the search segment and hence lesser demand in this segment, 3. migration from voucher sales for getaways to more sales on the hotel platform where revenue is recognized at a later stage. ^[1]

Travelzoo’s Recent Asia Pacific Business Reacquisition And Management Restructuring

Travelzoo tried repositioning its services by migrating from a deal publishing website to one focused on its hotel platform in Q1 2014. The hotel booking platform, like a regular OTA, enables users to book hotels from Travelzoo’s website or through its mobile application. Hotel suppliers can sell full-priced stays under a commission-based model. The platform started picking up demand after its relaunch in February. Recently, Travelzoo reacquired its Asia Pacific business primarily in order to explore the fastest growing Chinese outbound travel market. China is expected to account for almost one-third of the APAC travel market by this year. ^[3] China’s online travel market is expected to keep reflecting double-digit growth and reach around $75 billion by 2017. ^[4]

Additionally, the company has brought about some management changes. Travelzoo’s CEO Chris Loughlin resigned recently and its chairman Holger Bartel will assume the position of the global CEO, effective January 1, 2016. ^[5] Chris Loughlin has been instrumental in introducing local deals and making voucher sales a popular concept on the Travelzoo platform. However, currently in its local deals segment, Travelzoo is trying to promote more live deals and phasing out the rigid voucher format of deals. With the shifts in focus, the company might have found its chairman to be more suitable to handle the transitioning phase of the company.

Along with this, the company had announced the appointment of Mike Stitt as the president of Travelzoo North America, which has already been effective. Finally, effective January 1, 2016, Vivian Hong, who currently heads operations in Travelzoo China, Hong Kong, and Taiwan will be the president of Travelzoo Asia Pacific which along with the aforementioned regions would also include Australia, Japan, and Southeast Asia.

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1. Travelzoo’s Q3 2015 Earnings Transcript, Seeking Alpha, Nov 3, 2015 [↩] [↩] [↩] [↩]
2. Travelzoo Third Quarter 2015 Performance and Growth Strategy Overview [↩]
3. Deep Dive Into Asia Pacific Online Travel Market, tnooz, December 20, 2013 [↩]
4. Chinese Travel Platform Qunar Raises $500M, Turns Down Ctrip Acquisition Offer, Tech Crunch, June 1, 2015 [↩]
5. Travelzoo Press Release, October 1, 2015 [↩]