), a leading global Internet media company that provides
information on travel, entertainment and local deals, witnessed a
seasonally low Q3 2013. Revenues were up 5% y-o-y to $37.3 million,
although lower than $41.3 million earned in Q2. The company
incurred a net loss of $19 million in Q3 2013 compared to a net
profit of $3.5 million in Q3 2012 due to a one-time charge of $22
million related to a legal settlement over unclaimed property
audits. Non-GAAP net income, which excludes the impact of the
one-time charge, stood at $3 million.
Travel revenue rose by 16% y-o-y driven by growth in certain
vacation packagers and Getaway hotel deals both in North America
and Europe. This remarkable performance by the travel division was
offset by declines in search and local deals revenue. Search
revenue dropped by 10% due to reduced spending on traffic
acquisition, while local deals revenue fell 8% owing to a reduced
number of local deals vouchers sold per deal and lower take rates.
Travelzoo's stock plunged 10% post its earnings announcement.
We believe Travelzoo's search division will gain stability as
the company frees up resources from its new hotel booking platform
and diverts them towards the search business. We also believe that
the company's subscriber base will balloon as its audience
engagement strategies generate repeat visits, referrals and higher
See our full analysis of
Search Business To Improve Post Hotel Booking Platform
Travelzoo's new hotel booking platform, which is due to be
launched in 2014, has been demanding heavy capital investments as
it is still in the development phase. The company incurred
$800,000 on the hotel platform in Q3 2013. No revenue is being
realized from the hotel platform presently and the beta-testing
phase is expected to start beginning of 2014, with incremental
revenue realization to occur in the late second half of the
The need to balance investments has forced the company to reduce
spending on search marketing, resulting in lower search revenue. We
believe that search revenue could increase after the completion of
the hotel platform roll-out as Travelzoo shifts its focus towards
bolstering growth in the search business and increases its search
Audience Engagement Strategies To Help Enhance Subscriber
Given the nature of its products, Travelzoo has seen an increase
in the audience accessing its services through mobile
devices. Mobile now accounts for over 40% of its total
traffic. The company's mobile iPhone and Android apps crossed 2.2
million downloads in Q3 2013. It also saw a record number of visits
on social media with approximately 1.8 million combined Facebook
and Twitter fans at the end of the quarter.
Seeing the current trends Travelzoo has increased its focus on
building its mobile and social audiences. It is working to lift
consumer engagement levels by focusing on product development that
will simplify ease of use and create better visual presentations.
This was the primary motive behind the decision to build its own
hotel booking platform as it will allow users to quickly and easily
book hotels within Travelzoo's websites and mobile products.
Travelzoo also updated its website last week to include subscriber
localization, enhanced search function, Facebook comments, and user
reviews and rating. This increased year-over-year subscriber
activity on Travelzoo sites by 14%.
We believe that such initiatives will help the company fuel
audience growth, thereby boosting its top-line.
We are in the process of updating
our $24 price estimate for Travelzoo
based on the Q3 2013 results.
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