Travelzoo’s (NASDAQ: TZOO) share price has traced a pronounced crest-and-trough pattern since early 2018, with the company’s shares first jumping from $6 (the lowest level since the downturn) to a multi-year high of $22 in the run up to the Q2 2018 results, only to plunge around 70% to $7 after the Q3 2018 results announcement. The cycle reversed itself over subsequent quarters, with the stock tripling in value to $21 by May 2019 before settling around its current level of $13.
Trefis analyzed Travelzoo’s Earnings trends over the last six quarters to understand the reasons behind these extreme price fluctuations in an interactive dashboard – key parts of which are summarized below. You can modify yearly projections to gauge the impact on Travelzoo’s stock. Additionally, you can find more of our Consumer Discretionary sector data here.
In this article Trefis analyses Travelzoo’s operational performance over the last few quarters and the impact on its share price.
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A Quick Look at Travelzoo’s Revenues
Travelzoo reported $111 million in Total Revenues for full-year 2018. The company generates its revenues through two advertising products: Travel and Local.
- Travel: $94 million in FY2018 (85% of Total Revenues). The deals published on the Travelzoo website by hotels, travel companies, airlines, etc. involves a listing fee, which is recognized as income under the Travel category.
- Local: $17 million in FY2018 (15% of Total Revenues). The offers by local merchants published on Travelzoo’s locally-targeted e-mail newsletter involves a listing fee, which is recognized as income under the Local category.
The Looming Asia Pacific Business
Travelzoo operates across three geographical segments: North America, Europe, and Asia Pacific, which contribute 61%, 32% and 7% of the total revenues, respectively. North America and Europe segments are recognized as the company’s core operations and have been reporting nearly flat revenues for the last three years.
The Asia Pacific segment has been a drag on the company’s growth and profits since it was reacquired in 2015. Though the number of members has remained flat at around 3.5 million, total revenues from the Asia Pacific segment have declined by 20% in the last two years. Moreover, the segment’s continued losses have been weighing on the company’s operating profits, which declined from 17% in 2014 (pre-reacquisition) to 5% in 2017.
Unanticipated Results Over The Last Few Quarters Have Triggered The Sharp Share Price Changes
Over recent quarters, Travelzoo’s management has hired a consulting firm in China to revive its Asia Pacific operations. While the Asia Pacific segment has clearly been on the decline over recent quarters, the trends in the core business have been much more unpredictable, with revenues as well as expenses swinging considerably from one period to the next. These spikes in the core business’ profitability are primarily responsible to the sharp price changes.
- In Q1’18, the core business reported an operating income of $5.4 million against revenues of $28.9 million.
- The operating income fell by nearly 50% in Q2’18 and Q3’18 to $2.5 million and $2.3 million, respectively. This was primarily due to an increase in advertising spend and a 10% sequential decrease in revenues.
- However, during Q4’18, the operating income surged by 86% to $4.3 million.
- The operating income jumped further in Q1’19 due to a sizable increase in revenues, before shrinking again in Q2’19 as revenues fell despite expenses remaining at the level for the previous quarter.
In fact, the company’s stock has followed the trend of the overall operating margin quite closely, as highlighted in the chart below.
Based on our forecast, Travelzoo’s EPS for full-year 2019 is likely to be around $0.58. Using this figure with our estimated P/E ratio of 22.5x, this works out to a price estimate of $13 for Travelzoo’s stock (shows cash and valuation analysis), which is largely around the current market price.
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