The weak macro conditions and lower revenue from Local Deals and
Supersearch led to a slowdown in Travelzoo's (
TZOO
) business in Q3 2012. However, driven by higher revenue from Local
Deals and growing strength in its Getaway platform, the company saw
a 4% sequential and 5% annual increase in its Q4 2012
earnings. (Read:
Local Deals & Getaway Platform Lift Travelzoo's
Earnings, Outlook
)
While higher revenue from travel and Local Deals
contributed to a y-o-y growth in both North America and Europe,
Travelzoo's search revenue continued declining in Q4 2012. Besides
macro headwinds, reduced spending by certain online bookings
engines, airlines and vacation packagers has impacted the number of
searches on Travelzoo's websites. The growth in number of searches
slowed down to 2.4% in 2012, as compared to 11.2% and 8.5% in 2010
and 2011 respectively.
While we forecast a continuous decline in searches via
Supersearch, we estimate the searches on Fly.com to register y-o-y
growth for the rest of our review period. We believe that the
increasing marketing spend on Fly.com, the introduction of the
hotel bookings platform and the expanding mobile platform, will
help revive growth in travel searches.
See our full analysis of
Travelzoo
Diverting Marketing Spend Away From
Supersearch.com
Travelzoo's search division includes revenues from both,
Fly.com, a travel search engine and Supersearch, a pay-per-click
travel search tool. While Travelzoo registered an increase in
searches via Fly.com in 2012, the number of searches on Supersearch
has declined over the years as it diverts its marketing spend away
from Supersearch, and towards Fly.com.
While Travelzoo is looking towards a strategic review of
its Supersearch product to stabilize the decline in the number of
searches, it is also investing heavily in further developing the
Fly.com platform which it claims to be superior in technology
compared to Supersearch.com.
Fly.com is Travelzoo's main focus with regards to its search
business and an important part of its growth strategy. The company
is taking a strong interest in the product and incurring heavy
marketing spend on the same. It claims to have incurred relatively
higher spending on its search platform in Q4 2012.
Development Of Hotel Booking Platform To Fuel
Searches
Initially, Fly.com was only an airfare search engine
enabling users to find and compare flight options and real-time
fares from hundreds of airlines and major travel websites. In
November 2011, Travelzoo officially launched a hotel and car rental
search functionality on Fly.com. After entering the search
criteria, results can be filtered in several different ways to best
fit travelers' needs, which include pricing, star-rating, location,
amenities and type of property (resort, hotel, B&B or even
hostel).
However, believing that its hotel search offerings was not
meeting the needs of users and hotel owners, Travelzoo has decided
to launch its own hotel booking platform. It has been incurring
increasing development costs for building its hotel booking
platform. While the increase in investments might hurt short
term growth, we expect it to play a crucial role to spur long-term
search growth.
The new hotel booking platform will enable users to book
hotels directly via Travelzoo's website or through mobile
products. Since hotel bookings offer higher revenue per
traveler compared to airlines, we think that improvising its hotel
offerings should augur well for the number of searches on
Travelzoo's websites.
Expanding Mobile User Base To Fuel Fly.com
Searches
Enhancing and developing new mobile applications and focusing on
improving conversion rates on its mobile platform are some of the
key strategic areas for Travelzoo. The company intends to transform
the entire product organization to a mobile first organization
this year.
While Supersearch continues to be very popular with OTAs because
it delivers extremely efficient bookings, the company claims that
the product is relatively time consuming for users compared to
newer comparison models and is not so suitable for mobile. We
believe that Fly.com is better positioned to leverage growth in the
mobile user base, which in turn can lead to higher search queries
for Travelzoo.
The Travelzoo application has been downloaded by 1.5 million
people so far and mobile traffic accounts for one-third of the
total traffic on Travelzoo's websites. We expect this proportion to
significantly increase in the future.
Our price estimate of $23.01 for Travelzo0
is almost in line with the current market price.
Understand How
a Company's Products Impact its Stock Price at Trefis