Travelzoo (TZOO) has a relatively long history of travel e-commerce, having been in operations since 1998. It sets itself apart by being a “deal” type website, not a flight, hotel, or rental car booking operation. The company provides its 30 million members exclusive offers and unique travel experiences carefully curated by the companies own deal experts.
Travelzoo works with over 5,000 travel suppliers. It promotes and distributes its offerings through the Travelzoo website (travelzoo.com), iPhone and Android apps, the Travelzoo Top 20 email newsletter, and the Newsflash email alert service.
These types of travel deals were negatively affected by the COVID-19 pandemic and the almost complete shutdown of leisure travel domestically and internationally.
TZOO stock declined from its highs of $20 in 2019 to $3 in 2020 as the pandemic was raging. The company was on the road to recovery as vaccinations took hold in 2021. However, the Delta variant emergence stalled out the full recovery and negatively affected the stock price in the late summer and fall.
I am bullish on TZOO stock as a near full travel recovery may take hold in 2022 as COVID-19 vaccination levels increase and additional treatment emerge. (See Analysts’ Top Stocks on TipRanks)
Jack’s Flight Club
In January 2020, Travelzoo acquired a majority stake (60%) in Jack’s Flight Club, a profitable, fast-growing media business that informs consumers about airfare bargains and sales. The business is largely based in the United Kingdom.
The timing was not perfect, of course, due to the pandemic, but the company continues to focus on growing its profitable paid subscription model.
Third-quarter revenues and profits were up versus a year ago, but somewhat below expectations as the Delta variant held back results. The timing of recovery and exposure to the Delta variant is somewhat different from that in the United States.
Revenues increased 14% to $15.7 million, as European-based revenues helped substantially with a 43% increase in revenues. $190,000 in positive EBITDA was generated during the quarter.
Business Model Captures High-Value Members
According to internal surveys, of Travelzoo’s approximately 30.7 million members, 53% are considered affluent with annual salaries higher than $100,000.
In addition, almost half of the members are in the coveted 45-64 age demographic that has a higher level of discretionary spending and more leisure time. Also, 90% have some level of college education and are prone to travel more, particularly international. There are now approximately 6.8 million mobile app users as well.
Positive Outlook for Travel and Margins
Many more international borders have and are opening for tourist travel. Although many restrictions still occur regarding vaccinations, the overall trends are heading in the right direction.
The company stated it is continually focused on controlling expenses and believes margins will continue to improve, as much of its expense base is fixed costs. There is leverage in the business model as revenues continue to increase in 2022.
Valuation and Cash Balance
With a decent-sized travel recovery in 2022, it’s possible TZOO could earn over $1.00 in EPS next year. That would make TZOO stock very cheap at this time based on a stock price of $9.76.
In addition, TZOO has always maintained a strong balance sheet. As of September 30, 2021, the company has $66.4 million in cash on the balance sheet, representing over 50% of its market cap. There is no meaningful amount of debt on the balance sheet.
I am bullish on TZOO stock and believe it can continue to grow, improve margins and take advantage of the leisure travel recovery from the global pandemic.
Wall Street’s Take
Turning to Wall Street, TZOO has a Moderate Buy consensus rating based on two Buy ratings assigned in the past three months. At $18.50, the average Travelzoo price target implies 89.6% upside potential.
Disclosure: At the time of publication, Tom Kerr did not own shares of any stocks mentioned above.
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