Despite a remarkable improvement in its 3Q earnings, Travelzoo (NASDAQ: TZOO) witnessed a 30% drop in its stock price as the company failed to meet the consensus expectations for both revenue and earnings. The global publisher of exclusive offers was penalized by investors as a weak performance in the Asia-Pacific market continued to dampen the growth in North America and Europe. However, the company highlighted its plans to continue investing in the Asia-Pacific market and turnaround profits from these markets in the next couple of years. The company has also launched Asia-Pacific 2020, a project aimed at enhancing its performance from the region. We expect this strategy to reap strong results for the company and drive its value in the near term.
We currently have a price estimate of $15 per share for the company, which is higher than its market price. View our interactive dashboard – Travelzoo’s Outlook For 2018 – and modify the key drivers to visualize the impact on the company’s valuation.
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Key Takeaways From 3Q’18 Results
- Travelzoo’s revenue for the quarter grew to $25.3 million, up 2% year-over-year in nominal terms and 3% in constant currencies. The revenue from North America was relatively flat at $14.9 million, while the revenue from Europe was $8.4 million, 6% higher on a year-on-year basis. The revenue from Asia-Pacific region was $2 million, 13% higher on a y-o-y basis in constant currencies.
- In terms of profitability, the company generated operating income of $1.4 million from North America and $0.9 million from Europe. However, these were offset by the operating loss of $1.6 million from Asia-Pacific region. Further, the company could not offset its tax bill against the tax benefit from the Asia losses, which weighed on its bottom-line. Yet, Travelzoo delivered earnings of $0.01 per diluted share, $0.06 per share higher compared to the year ago quarter.
- Despite the losses incurred in the Asia-Pacific markets, Travelzoo plans to continue investing as well as increase its marketing spend in the region. In this quest, the company has launched a project called Asia-Pacific 2020, which is aimed at achieving positive operating profits from the region over the next two years.
- Under the project, the company will assemble a team of experienced executives from Travelzoo’s key functions in Europe and North America with strong knowledge of its business. The project team will outline a clear path to profitability and manage execution through various partnerships, particularly in China. This should allow the company to grow scale more rapidly and deliver profits at per its targets.
- Last quarter, Travelzoo had announced its plans to launch a global technology that will allow its members across the globe to book hundreds of exclusive hotels as part of a complete trip or package. The company would negotiate competitive rates with its established and experienced partners in the hotel and airline industry and bundle them together in a package offering.
- The company launched this technology in Germany in the third quarter and witnessed a surge in the bookings. Given the solid response to this technology, the company will roll it out in select markets in Europe in the fourth quarter and in North America at the beginning of next year. This will allow the company to leverage its partnerships to create an enhanced product offering for its members, which will boost its top-line in the coming quarters.
- Further, Travelzoo believes that there is a huge potential to grow its current member base, which it plans to achieve by investment in marketing and strategic partnerships. These investments will be used to strengthen the company’s brand and increase its visibility and reach. We expect these investments to accelerate the company’s top-line growth and double its revenue over the next few years.
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