Travelzoo Presents Yet Another Disappointing Quarter On The Back Of Natural Calamities And Its Lack Of Traction In Important Markets

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Travelzoo‘s Q3 earnings report, in line with its performance over the last few quarters, was not a promising one. Its revenues declined by 8% y-o-y to $24.7 million. It incurred a net loss of $576,000 while its loss per share amounted to $(0.05). The company has been struggling with its performance for almost three years now. The third quarter revenues were adversely impacted by the two large hurricanes in some parts of the U.S. and the Caribbean. However, this is not a one time weakness for Travelzoo. While its revenues declined by 10% y-o-y to $54.8 million during the first half of 2017, its earnings per share from continued operations declined by ~ 54% to $0.12. Travelzoo’s introduction of a hotel booking platform in 2014, and subsequently attempting to make it the focus of its business while gradually reducing the stress on the local deals and search segments, seems to have still not worked well enough for the company. The company’s membership base stood at 29.5 million at the end of the first nine months of 2017. We have an $8.50 price estimate for Travelzoo’s stock, which is around 19% higher than the current market price.

All Its Regions Demonstrated An Erosion Of The Top Line

Travelzoo had earlier reacquired its Asia Pacific business and put a special focus on China, whose tourism industry is one of the most lucrative in the world today. It took measures like hiring region specific managers, launching new mobile applications in China, expanding offerings, giving better member perks etc. In its Q2 earnings call, the management even spoke about a growth strategy for the region. However, these measures have yet not reaped much benefits because its Q3 Asia Pacific revenues fell by 31% y-o-y to $1.8 million and the operating loss in the region was around $1.7 million. The loss of a large bankrupt customer in Japan dampened the travel revenues significantly, whereas the pulling out of local deals from weak markets was the reason for the decline in the local deals revenue.

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In Europe its revenues fell by 6% to $7.9 million while in North America it declined by 5% to $15 million. In both these regions, the company incurred operating profit though both faced a year-on-year decline in the same. The European revenues were impacted by the difficulty in deal sourcing and the decline in the sales of vouchers in the region.

Travelzoo Is Desperately Trying To Bounce Back

The company has been constantly making efforts to turn around its performance but so far, no significantly positive result has materialized. Even though it made some good progress in North America in the second quarter, those results seem to have been undone by natural calamities impacting the region in Q3. The company is still focused on providing better offerings to its members through better deals and more exclusive offers. It is also on the lookout for acquisition targets which might strengthen its offerings in the vacation package segment. Its hotel booking platform has now been rolled out globally to all the countries where it is present. The company plans on more personalized services for its members along with a better user experience. The management is focusing on top line growth in Q1 2018 and these initiatives might finally be able to reap benefits for Travelzoo.

Travelzoo seriously needs a revamp in its performance chart in order to avoid itself getting acquired by a bigger entity. OTA leaders such as Priceline, Expedia, and Ctrip are ever ready to acquire smaller entities and to grow them further along with expanding their own offerings and market shares. Travelzoo currently has an over 29 million member base and its curated holiday packages are an attraction to a lot of people. Hence, acquiring a company like Travelzoo and then marketing its services more attractively might work well for the leading OTAs.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Travelzoo

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