Why Did Travelzoo Reacquire Its Asia Pacific Business?

Travelzoo (NASDAQ:TZOO) recently reacquired its Asia Pacific (APAC) business from Azzurro Capital for $22.6 million. After the initial hiccups of launching a hotel booking platform, Travelzoo had finally been able to witness growth in the platform in 2015. Consequently, Travelzoo, which erstwhile operated in North America and Europe, envisioned further global expansion for the hotel platform. Travelzoo’s APAC business, with its healthy topline growth (~$11 million in 2014) and a substantial subscriber base (~3 million) is expected to aid Travelzoo in this mission. Travelzoo’s APAC business currently has operations in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia.

Travelzoo had sold its APAC business six years ago for $3.6 million. This was because the weak performance of this division was dampening Travelzoo’s overall earnings. The spinoff agreement had the option of Travelzoo buying back the APAC segment at a fair market value, later on. ^{[1] [2]}

Travelzoo had a subscriber base of  27 million as of 2014, including its Asia Pacific business, that was erstwhile operated as a  separate entity.

Our price estimate of $9.30 for Travelzoo is slightly higher than the current market price.

See our full analysis of Travelzoo

Travelzoo’s Hotel Platform Growth Can Be Further Bolstered With The Help Of Its APAC Business

Hotel Platform Launch And Lackluster Demand In 2014: Previously, Travelzoo was solely a deal publishing website, where customers could find discounted travel and entertainment deals. Travelzoo’s supply or push-based hotel offerings transformed with the introduction of its demand or pull-based hotel platform in Q1 2014. The hotel booking platform enables users to book hotels directly from Travelzoo’s website or through a mobile platform, thus presenting Travelzoo with the functionality of a regular OTA. This platform offered hoteliers the freedom to sell full-priced stays under a commission-based model. Additionally, Travelzoo’s subscribers could find more suitable stay options rather than take whatever is given under the discount deal section.

However, the platform couldn’t generate enough traction in 2014, and as a result, Travelzoo’s revenue witnessed a 10%  year-on-year decline to $142 million for the full-year 2014. ^[3] The company relaunched the hotel booking platform at the end of February 2015, with newer content pertaining to six destinations including New York, Las Vegas, and Chicago. The current focus is on making the deals easy to find at any point in time and through any device. ^[4]

Recovery In 2015:

The hotel platform started witnessing positive response since the beginning of 2015. The hotel search and searching for deals for specific dates have witnessed significant growth on the platform. The company, encouraged by the hotel platform’s reception and conversion rates in North America, intends to set out a global roll-out soon. It is at this point that Travelzoo’s APAC business comes into significance.

Travelzoo APAC Will Help Tap The Chinese Outbound Market

Travelzoo’s management had spoken about plans of tapping into the fastest growing Chinese outbound travel market with the Travelzoo APAC reacquisition. The Asia Pacific travel market has surpassed Europe in 2012 and is the current global leader in regional travel, according to a report by PhoCusWright. China is expected to account for one-third of the APAC travel market by 2015. ^[5] China’s online travel market is expected to continue its double-digit growth and reach $75 billion in 2017. ^[6] China’s outbound travel crossed 100 million in 2014, reflecting around 20% year-on-year  growth. ^[7] According to Attract China, Chinese outbound travel is expected to reach 140 million with a spending of over $188 billion by the end of 2015. ^[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 

Will Travelzoo’s Search Segment Experience a Further Boost In The Future?

Travelzoo has recently included Beatrice Tarka, the CEO and founder of travel search engine platform, Mobissimo, into its board of directors. ^[2] Though Travelzoo refused to draw any connection between Travelzoo and Mobissimo’s relationship due to this inclusion, we believe there might be a possibility of a strategic relationship in the future.

Travelzoo’s Search division showed signs of recovery in 2015, after almost two years of weak performance. The division reaped better monetization in Q1 2015 and displayed 4% year-on-year growth in Search revenue to around $5 million. As a result of this, the management had marginally increased spend on Travelzoo’s products, i.e., SuperSearch and Fly.com. ^[4] There might be a probability of a strategic partnership with Mobissimo to further boost this segment in the future.

In conclusion, Travelzoo is currently trying to reinvigorate all its divisions, and the recent strategic moves seem designed towards moving in that direction.

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1. Travelzoo Acquires Asia Pacific Business, Travelzoo Press Release, August 26, 2015 [↩]
2. Travelzoo Reacquires Its Asia-Pacific Business From Founder for $22.6 Million, Skift, August 26, 2015 [↩] [↩]
3. Travelzoo Reports Fourth Quarter 2014 Results , Travelzoo, January 2015 [↩]
4. Travelzoo’s Q1 2015 Earnings Call Transcript, Seeking Alpha, April 16, 2015 [↩] [↩]
5. Deep Dive Into Asia Pacific Online Travel Market, tnooz, December 20, 2013 [↩]
6. Chinese Travel Platform Qunar Raises $500M, Turns Down Ctrip Acquisition Offer, Tech Crunch, June 1, 2015 [↩]
7. China Outbound Tourism in 2014, China Travel Guide [↩]
8. 2015 Trends in China’s Outbound Travel Market, January 9, 2015, Attract China [↩]
9. Travelzoo buys back APAC ops, gets women on its board, tnooz, August 27, 2015 [↩]