Author Topic: TZOO - Travelzoo  (Read 1835 times)

bizaro86

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TZOO - Travelzoo
« on: May 18, 2020, 04:00:44 PM »
When I was calling out thepupil for being awesome and posting so many interesting new ideas to the board, I realized I should probably try and be the change I want to see in the world a bit and contribute something new.

Travelzoo is a online travel deals business. They send out a mass email "The Travelzoo Top 20" with a list of travel bargains. Travel suppliers pay a fee to get their deal on the list. I'm pretty sure their are minimum "deal-quality" criteria as well. I've booked the odd thing off of their list before, and read it regularly. The deals are usually pretty good.

Naturally the stock has been destroyed due to the COVID-19 complete shut-down of travel. However, I think this business will survive. They have no debt and a decent cash balance. They also shut-down their money losing Asia business. This will help reduce cash burn in the short term and also improve earnings once the world comes out of this. The thesis here is pretty simple
1) They will survive
2) If they do they're really cheap.

Trailing EPS is $0.35. They bought a subscription business in January that was doing $2 MM in earnings. That will probably go down initially due to COVID, but they can promote it to their email list. Plus the money losing business burned ~$7 MM last year.

Figure that they make their 2019 number plus $9 MM/11.6 MM shares adds $0.78 to earnings. So "normal year" earnings would be up to $1.13. Shares are about $5 right now. Part of the decline here is probably due to forced selling. Notably, the major owner had a margin call in March.

Quote
"Shares were sold by E*TRADE Securities LLC (an involuntary sale by Azzurro Capital Inc.)."

https://sec.report/Document/0001707267-20-000008/



Other reading:

https://valueinvestorsclub.com/idea/Travelzoo/8254655975

https://seekingalpha.com/article/4348426-travelzoo-is-beaten-down-covidminus-19-is-hiding-business-transformation


Foreign Tuffett

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Re: TZOO - Travelzoo
« Reply #1 on: May 18, 2020, 05:24:19 PM »
Interesting idea, but I am concerned about the robustness of a business model that primarily seems to be revolve around having a really, really big email list.

$140.8 million in revenue in 2013, but only $111.4 million last year. Did they divest something, or has revenue just trended down? Similarly, looks like they were much more profitable in the 2012 - 2014 period than they are now.

Former Teldar Paper Vice President

bizaro86

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Re: TZOO - Travelzoo
« Reply #2 on: May 18, 2020, 07:27:04 PM »
Interesting idea, but I am concerned about the robustness of a business model that primarily seems to be revolve around having a really, really big email list.

$140.8 million in revenue in 2013, but only $111.4 million last year. Did they divest something, or has revenue just trended down? Similarly, looks like they were much more profitable in the 2012 - 2014 period than they are now.

Part of the profitability difference is that they sold the Asia business to the founder, and then bought it back in 2015. The Asia business has lost money consistently, so the years when it was off their books were more profitable for that reason alone. Now that they're shutting it down that will help. Worth noting they paid a much higher price buying it back than they got for selling it, which doesn't seem especially shareholder friendly.

There were also a number of businesses that they launched in the 2010-2011 timeframe that increased revenue without adding much long term value. Notably a search business centered around Fly.com, which was their attempt to compete as a flight booking engine/online travel agent. This didn't work, and their search segment was approximately $24 MM of revenue in 2013. They've shut that down and sold the domain, so revenue there is 0 now.

The other piece that has basically died off is local deals, which is their Groupon competitor. They launched this in 2010 when local deals were a fad item, and it has mostly died down at this point. 2013 revenue for local deals was $35.8 MM compared to $15.2 MM during 2019. I think that's a pretty terrible business and doubt it contributes much to margins at this point.

The core travel business is mostly flat over that time period. It did $98.5 MM in revenue 2013, and $96.2 MM in 2019. $6.3 MM of that 2019 number was Asia, which they will be shutting down. I make no claims that this is a growing compounder, and I wouldn't expect them to ever get travel revenue above $100 MM.

But I do think 2-3 years from now EPS will be right around that $1.13, and I think when that happens the market probably gives it a 10x multiple. That implies $11 per share for something at $5 right now.

bilo

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Re: TZOO - Travelzoo
« Reply #3 on: May 19, 2020, 08:34:26 AM »
The key catalyst is the shut down of the Asia business.  When a low price, low float stock has earnings go up 200% yr/yr, that tends to make the stock go up. 

Jack's looks like a good acquisition both in terms of business model and potential to grow via their own marketing lists/techniques.  Estimate was (pre-covid $.20 boost to EPS first year).

Unfortunately, the Covid shut down threw a wrench into what would have been a very simple investment thesis.   On the other hand, the price is now cut in half.. 

If they can manage through present situation without impairment longer term the stock will end up skyrocketing. Of course, the "IF" is real and can't be dismissed as short term situation seems very unclear. 

If things open up, their model is very well suited to helping hotels fill empty rooms - could see a boom period.. once again need to get past this difficult period to get there though. 



keerthiprasad

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Re: TZOO - Travelzoo
« Reply #4 on: May 19, 2020, 01:57:24 PM »

But I do think 2-3 years from now EPS will be right around that $1.13, and I think when that happens the market probably gives it a 10x multiple. That implies $11 per share for something at $5 right now.

Thanks for sharing. Interesting idea. Curious why a 10x multiple? It has generally traded at a higher valuation.

bizaro86

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Re: TZOO - Travelzoo
« Reply #5 on: May 19, 2020, 03:51:58 PM »

But I do think 2-3 years from now EPS will be right around that $1.13, and I think when that happens the market probably gives it a 10x multiple. That implies $11 per share for something at $5 right now.

Thanks for sharing. Interesting idea. Curious why a 10x multiple? It has generally traded at a higher valuation.

Just for conservatism. I agree it's possible it could trade at 20x or more those earnings, and it has traded at "internet company" multiples in the past.

keerthiprasad

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Re: TZOO - Travelzoo
« Reply #6 on: May 19, 2020, 05:02:04 PM »


But I do think 2-3 years from now EPS will be right around that $1.13, and I think when that happens the market probably gives it a 10x multiple. That implies $11 per share for something at $5 right now.

Thanks for sharing. Interesting idea. Curious why a 10x multiple? It has generally traded at a higher valuation.

Just for conservatism. I agree it's possible it could trade at 20x or more those earnings, and it has traded at "internet company" multiples in the past.

Makes sense. Thank you.

keerthiprasad

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Re: TZOO - Travelzoo
« Reply #7 on: May 29, 2020, 03:46:22 PM »
Was anyone able to catch the annual meeting?

mattone

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Re: TZOO - Travelzoo
« Reply #8 on: June 01, 2020, 11:47:59 AM »
Was anyone able to catch the annual meeting?

Yes - I even posted a couple of questions - only one was answered.
The meeting was mostly useless. The question was around covid trends. She (board member) sounded optimistic with flexible deals. Nothing earth-shattering.

keerthiprasad

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Re: TZOO - Travelzoo
« Reply #9 on: June 01, 2020, 04:32:09 PM »
Was anyone able to catch the annual meeting?

Yes - I even posted a couple of questions - only one was answered.
The meeting was mostly useless. The question was around covid trends. She (board member) sounded optimistic with flexible deals. Nothing earth-shattering.

Too bad it wasn't more helpful. Thank you