Travelzoo’s Year 2015 At A Glance

Travelzoo (NASDAQ: TZOO), the global internet media player, had an eventful 2015. The company changed the formats of most of its offerings, witnessed gradual recovery of demand for its new hotel booking platform (introduced in 2014), reacquired its Asia Pacific business, and made some key management changes. For the first nine months of 2015, Travelzoo displayed around 8% year-over-year decline  in revenue to ~$110 million. Travelzoo’s diluted earning per share for the period stood at $0.71 as against $0.88 in the same period last year. The company’s member base increased to 28 million (from ~27 million) after the acquisition of the Asia Pacific business in August 2015.

Due to a lot of restructuring within the company, its apparent performance might not look too impressive. However, Travelzoo’s gradual recovery over the last twelve months (in constant currency terms) is evident by its key financial metrics. ^{[1] [2] [3]}

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

The company’s decline in revenue is expected to continue in the fourth quarter as well, on account of the ongoing transitioning of the company to more demand-based products from its erstwhile push-based ones. The company also intends on increasing spends on product developments and investments in China. ^[2]

However, going by the new initiatives and the increased traction of its hotel platform, we believe Travelzoo is poised for better performance in 2016 and for more promising growth in the long term.

Our price estimate of $8.24 for Travelzoo is almost in line with the current market price.

See our full analysis of Travelzoo

Travelzoo’s Focus On The Hotel Booking Platform Yielded Positive Results

Travelzoo had been undertaking major changes in its offerings over the last couple of years. Travelzoo is trying to get rid of its voucher format for local deals and currently focusing on demand-based live deals. Also, in Q1 2014, the company introduced its hotel booking platform and tried repositioning itself from a deal publishing website, to one focused on the hotel platform. The hotel booking platform presents Travelzoo with the functionalities of a regular OTA, allowing users to book hotels from Travelzoo’s website or through its mobile application. Suppliers of the hotel inventories are also offered more flexibility in terms of selling full-priced stays (as against allowing only discounted stay sales in the past) under a commission-based model. The platform wasn’t received with much enthusiasm in the beginning, and consequently, Travelzoo’s revenue witnessed a 10%  year-on-year decline to $142 million for the full-year 2014. ^[4] However, the platform started picking up pace after the relaunch in February 2015, with newer content pertaining to six destinations including New York, Las Vegas, and Chicago. ^[5]

The hotel search and searching for deals for specific dates have witnessed significant growth on the platform. It is at this juncture that Travelzoo, encouraged by the hotel platform’s reception and conversion in North America, planned on a global rollout.

Travelzoo Reacquired Its Asia Pacific Business To Focus On Global Expansion

In August, Travelzoo reacquired its Asia Pacific (APAC) business from Azzurro Capital for $22.6 million. The company wants to focus on the fastest growing Chinese outbound travel market. China might account for around one-third of the APAC travel market by this year. ^[6] China’s online travel market is expected to grow by double-digits and reach ~$75 billion by 2017. ^[7]

According to a report by China Luxury Advisors, the overseas spending by Chinese outbound tourists is expected to reach $229 billion by the end of 2015, reflecting a 23% year-on-year growth. By 2020, the spending is expected to almost double to reach $422 billion. Its is also expected that by 2020, close to 250 million Chinese are expected to travel globally. ^[8]

Currently, Travelzoo’s APAC subscriber base is distributed as follows ^[9] :

Australia: Over 700,000 members
China: Over 1.1 million members and over 2 million users
Hong Kong: Over 440,000 members 
Japan: Over 1.1 million members 
Taiwan: Over 220,000 members

Travelzoo’s Management Changes

In October, Travelzoo’s CEO Chris Loughlin resigned and its chairman Holger Bartel is expected to assume the position of the global CEO from January 1, 2016. ^[10] The company also 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, currently leading Travelzoo China, Hong Kong, and Taiwan will be the president of Travelzoo Asia Pacific, which along with the regions mentioned, would also include Australia, Japan, and Southeast Asia.

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1. Travelzoo 10-Q Filing for the period ended Sep 30, 2015 [↩]
2. Travelzoo’s Q3 2015 Earnings Transcript, Seeking Alpha, Nov 3, 2015 [↩] [↩]
3. Travelzoo Third Quarter 2015 Performance and Growth Strategy Overview [↩]
4. Travelzoo Reports Fourth Quarter 2014 Results , Travelzoo, January 2015 [↩]
5. Travelzoo’s Q1 2015 Earnings Call Transcript, Seeking Alpha, April 16, 2015 [↩]
6. Deep Dive Into Asia Pacific Online Travel Market, tnooz, December 20, 2013 [↩]
7. Chinese Travel Platform Qunar Raises $500M, Turns Down Ctrip Acquisition Offer, Tech Crunch, June 1, 2015 [↩]
8. New CLA Report: Chinese Tourist Spending to Double by 2020, China Luxury Advisors, September 28, 2015 [↩]
9. Travelzoo buys back APAC ops, gets women on its board, tnooz, August 27, 2015 [↩]
10. Travelzoo Press Release, October 1, 2015 [↩]