The online travel space ran into a bit of turbulence yesterday.
The travel websites didn't necessarily have dreadful second quarters, though Orbitz did miss Wall Street's quarterly profit forecast. Priceline actually surpassed expectations, extending its streak of bottom-line beats to a whopping 25 consecutive quarters.
The stumbling block for both companies now is how the weakness in Europe will weigh down the current quarter.
Yes, there is "Worldwide" at the end of Orbitz, though the OWW ticker symbol seems strangely apropos these days. Priceline, largely through its Booking.com portal, is generating four times as many international gross bookings as it is domestic reservations.
No one knows when conditions will stabilize in Europe, and where the euro ultimately rests will go a long way toward dictating when Europeans will be able to afford traveling abroad. However, investors don't need to shy away from the inevitably promising market of online travel because of a particular region's sovereign debt crisis.
Let's look at three smart plays that aren't being exposed to the near-term calamities that Priceline and Orbitz are currently facing.
Travelzoo (Nasdaq: TZOO )
The travel deals publisher behind the Travelzoo Top 20 posted a better-than-expected profit three weeks ago. The company is delivering its healthiest operating margins in five years.
Revenue growth has been a challenge for Travelzoo, but it's actually growing at a healthier clip in Europe than it is closer to home.
It's easy to see why Travelzoo is gaining ground overseas. Just as thrift shops, dollar stores, and discount department store chains thrive when times are tight, Europeans are attracted to Travelzoo's sponsored yet vetted collection of deeply marked down getaways.
MakeMyTrip (Nasdaq: MMYT )
Even through MakeMyTrip is the leading travel portal in the world's second most populous nation, it's still small relative to most players.
India's dot-com darling saw its revenue after service costs climb 13% to a mere $23.9 million in the fiscal first quarter it posted earlier this week. It came through with a modest adjusted profit.
MakeMyTrip is bigger than its performance suggests. For starters, the Indian rupee has been getting hammered over the past year. Revenue actually climbed 36% in rupees. India is also still way behind in connectivity, but that will change in the coming years as the country's Draft National Telecom Policy seeks to broaden broadband access throughout the country.
There isn't a lot that investors can do about hurrying along the actual per capita income boosts that would also spur travel demand, but that, too, will come in time.
Ctrip.com (Nasdaq: CTRP )
China's leading travel website operator is further along on the growth curve than MakeMyTrip. China overtook the U.S. to become the world's largest Web-tethered nation, and the country's economy is growing at a brisk pace.
Shares of Ctrip hit three-year lows last month after posting disappointing quarterly results. While Ctrip's 17% revenue gain was in line with its guidance for top-line growth of 15% to 20%, profitability took a hit as margins were crushed.
Investors will naturally want to watch the situation with Ctrip's bottom line, but this is a rare opportunity to pick up a niche leader in the dynamic Chinese economy at an earnings multiple in the teens. The low price may linger until Ctrip proves that it can keep its costs in line, but when that happens Ctrip will move higher again in a hurry.
Pack a passport
A whopping 62% of Priceline's revenues -- and 81% of its gross bookings -- are being generated internationally.
However, Priceline isn't one of the three American companies set to dominate the world in a recent research report. Find out what the three companies are in the free report. It won't be around forever, so check it out now.