What Is Travelzoo’s Fair Value?

Travelzoo (NASDAQ: TZOO) has undergone multiple transformations, from subscription-based listings of top travel bargains to a global publisher of exclusive daily-deal trends. However, the company has been grappling with stagnating revenues in recent years. 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, didn’t drive significant growth for the company. But things turned around for the company over the course of 2018 – Travelzoo’s revenue grew 6% year-over-year to $84.2 million, driven by its core travel products, in the first nine months of fiscal 2018. The company’s Travel revenues continue to improve and generate increased profits to help further investment in the company’s products and marketing. Although Travelzoo has smartly expanded its sales force and pushed its business overseas, it will have to deal with the high expenses and fluctuations associated with adding and training new people, as well as entering new geographic regions.

Travelzoo has experienced a more than 25% surge in its stock price since the beginning of the year. We have maintained our price estimate for Travelzoo at $10, which is almost 20% ahead of the current market price. We have created an interactive dashboard on What Is Driving Our $10 Price Estimate For Travelzoo, which details our key forecasts and estimates for the company. You can modify the interactive charts in this dashboard to gauge the impact that changes in key drivers for Travelzoo can have on our price estimate.

Overview of Forecasts

Segment Overview

Travelzoo has two reportable segments: Travel revenue and Local revenue. The Travel segment includes deals from travel companies, such as hotels, airlines, cruises or car rentals and includes products such as Top 20, Travelzoo website, Newsflash, Travelzoo Network as well as Getaway vouchers. On the other hand, the Local segment includes deals from local businesses, such as restaurants, spas, shows, and other activities.

We expect the travel-related subscriber base to reach 30 million in 2018. The company has witnessed increased subscribers over the past few years. However, a decline in revenue per subscriber led to a decline in revenue from this segment. We expect revenue per subscriber of just over $3 in 2018 – which, when combined with the total subscriber base, gives us a total Travel revenue of $91.4 billion. Further, we estimate the company’s Local revenues to grow and reach $21 billion in 2018.

Looking Forward

Travelzoo plans to continue investing as well as increasing its marketing spend in the Asia-Pacific region. To that end, 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. Travelzoo also 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 plans to roll it out in selected markets in Europe in the fourth quarter and in North America in the beginning of next year. This will allow the company to leverage its partnerships to create an enhanced product offering for its members, which should boost its top line in the coming quarters. In addition, Travelzoo believes that there is a significant opportunity to grow its member base, which it plans to achieve by investing in marketing and strategic partnerships. We expect this strategy to reap strong results for the company and drive some value in the near term.

Travelzoo has also increased its focus on the areas of hotel bookings and vacation packaged bookings, but this segment remains highly competitive with bigger players like Booking Holdings (NASDAQ: BKNG), Ctrip (NASDAQ: CTRP), and Expedia (NASDAQ: EXPE). Consequently, the company is looking for acquisition targets to strengthen its offerings in the packaged booking segment.

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