Why Travelzoo Shares Took Flight

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of online travel and entertainment deal company Travelzoo (NASDAQ: TZOO  ) took flight, advancing as much as 27%, after surpassing Wall Street's estimates in the fourth quarter.

So what: For the quarter, Travelzoo reported that revenue increased a modest 5% to $37 million. However, net income slipped 42% to just $0.24 from the year-ago period. More interesting was that North American revenue rose just 3% while European revenue jumped double-digits, 10%. Wall Street's forecast had been calling for Travelzoo to earn only $0.22 on revenue of $35.5 million.

Now what: Up as much as 27% for a 42% decline in net income? I know Travelzoo tends to be a very volatile stock, but sometimes the moves here are breathtaking and without reason. Travelzoo has smartly expanded its sales force and pushed its business overseas -- albeit to Europe, the toughest market for growth on the planet right now -- but it's going to deal with the high expenses and fluctuations associated with adding and training new people, as well as entering new geographic regions. At a valuation of nearly 20 times forward earnings and with subscriber growth for the year of just 5%, I'm not particularly impressed and will personally be passing on Travelzoo at these lofty levels.

Craving more input? Start by adding Travelzoo to your free and personalized Watchlist so you can keep up on the latest news with the company.

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