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Shares of Travelzoo (Nasdaq: TZOO ) soared 17% yesterday, after the travel deals publisher delivered yet another market-thumping quarter.
Revenue in its latest quarter soared 24% to $28.5 million. Analysts were settling for a mere 9% top-line advance. Earnings from continuing operations clocked in at $0.15 a share, more than double the $0.07 a share that Wall Street was targeting.
Travelzoo's bread and butter is its "Top 20" travel deals email, with 17.8 million willing recipients. There's nothing sweeter than a growing audience, just as travel providers start to feel more comfortable about spending more to attract tourists. Expansion abroad has also begun to yield subscriber growth, and the company's losses are starting to narrow.
However, Travelzoo's $951,000 operating loss in Europe eats into its $6.1 million stateside operating profit. Worse yet, Travelzoo can't use its foreign deficit to offset Uncle Sam's tax bite on its domestic profits. The end result? Travelzoo is stuck with an effective tax rate of 50%.
In short, even that $0.15-a-share profit that blew away the analysts could be substantially higher, if Travelzoo's foreign business turns the corner. As it stands, the $19.5 million stateside operating profit that Travelzoo has scored during the past four quarters is being sandbagged by its European woes.
Travelzoo is unique in the way it tackles the travel industry. Expedia (Nasdaq: EXPE ) , priceline.com (Nasdaq: PCLN ) , and Orbitz Worldwide (NYSE: OWW ) -- as well as China's Ctrip.com (Nasdaq: CTRP ) and eLong (Nasdaq: LONG ) -- are traditional portals. They compete against one another to book hotels, flights, and car rentals. Travelzoo, on the other hand, simply publishes sponsored travel deals.
The conventional portals aren't exactly ignoring thrifty travelers. priceline's namesake site lets users propose prices. Expedia runs the Hotwire.com discounted travel site. Orbitz Worldwide watches over the self-explanatory CheapTickets.com hub. However, the arrival of a new Travelzoo email tends to spur customers' adrenalin, just like Woot.com or Groupon's daily specials, or Southwest's (NYSE: LUV ) Ding! desktop deal tool.
A few years ago, I figured that Travelzoo's model was so simple that it would be overcome by copycats. Now, it seems, it's too big to clone successfully. Travelzoo is here to stay, and now it's just one good trading day away from topping the $20 mark for the first time in more than three years.
Well traveled, Travlezoo.