Despite Macro Headwinds Travelzoo Fares Well in North America & Europe

Travelzoo Inc. (NASDAQ:TZOO), a leading global internet media company, announced its Q2 2012 results on Thursday, July 19. Though the second quarter revenues were only slightly higher than the previous quarter, they registered a 5% y-o-y rise in a seasonally down quarter. While the company’s North America business registered a y-o-y increase of 4%, the European segments growth rate slowed down to 7%. However, Travelzoo marked its sixth consecutive year of profitability in Europe.

The travel segment in North America registered a 3% rise on account of growth in hotel business deals by Travelzoo’s getaway offerings, whereas Europe registered a 8% y-o-y growth on account of sales staff added early in the quarter. Local revenue registered a significant y-o-y increase both in North America (15%) and Europe (28%), whereas the search division declined substantially for both geographies, primarily on account of Travelzoo’s reduced spend on traffic and lower spending by airlines.

Travelzoo has expanded its product offerings with Local Deals and Getaway, which has contributed to its growth in the last few years. Though the growth has slowed down recently, we believe it is more on account of macroeconomic trends such as reduced spending by airlines and online travel agencies, harsh economic environment in Europe and intense competition, among others.

We continue to believe that Local Deals and Getaway along with increased investment in product innovations will be the future growth drivers for the company. Additionally, we feel that an increase in mobile traffic and sales force ramp up will contribute both to the short-term as well as long-term topline growth for the company.

See our full analysis of Travelzoo

Growth In Mobile Traffic

In recent years, the emergence of alternate platforms – such as smartphones and tablets – have registered significant growth, which is expected to continue at a rapid pace in the years ahead. Targeting the mobile travel space, Travelzoo’s mobile platform across iPhones, Android and others, is now live in all countries.

As a result, the company has registered a significant increase in its mobile traffic, from 10% an year ago to the current level of 25%. The mobile download count almost doubled to 1 million downloads, with approximately 5000 people a day downloading the Travelzoo application.

Sales Force Ramp Up To Contribute To The Topline Growth

With a robust management and growing sales force, Travelzoo deals are now reaching around 125 markets and almost half the purchases are made by repeat buyers. Additionally, growth in new subscribers this quarter has helped the company reach closer to the 25 million subscribers milestone.

Travelzoo claims to be on track with its goal of hiring 50 additional sales staff, set at the end of Q1 2012, while focusing on maintaining productivity at the same time.

Stimulating its top line growth by further investing in sales, headcounts and marketing is one of Travelzoo’s strategic elements with which it plans to spur future growth, and we believe that the company has been faring well so far.

We are in the process of updating our current price estimate of $30.38 for Priceline

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