This Rocket Stock Just Got Another Boost

I'm accustomed to writing about a stock, buying it for my portfolio, and then promptly seeing its price trend downward. As a buy-and-hold investor, that isn't too big of a deal. But let's be honest: Who doesn't like immediate positive feedback?

With that in mind, I was pleasantly surprised to see last week's earnings release from Travelzoo (Nasdaq: TZOO  ) .

First, the cold, hard numbers
While investors were probably more focused on the 10% revenue and 32% earnings beats, a look at how Travelzoo has been faring year on year paints just as rosy of a picture.

Metric

First Quarter, 2010

First Quarter, 2011

Change

Revenue  $28,520  $37,000 30%
Non-GAAP EPS  $0.15  $0.37 147%
Subscribers 17.8 million 19.9 million 12%

Revenue and earnings in thousands.

Local deals
Travelzoo already differentiates itself from better-known travel portals such as priceline.com (Nasdaq: PCLN  ) , Orbitz (NYSE: OWW  ) , and Expedia (Nasdaq: EXPE  ) by publishing travel deals which aren't available anywhere else on the Web. And now, it's going one step further by entering the "deals" market currently dominated by Groupon and LivingSocial.

How are things going for what Travelzoo dubs "Local Deals"? Well, check out the chart below and you'll see that the initial foray has been a success.

Quarter

Markets

Gross Revenue

Q3 2010 12  $800
Q4 2010 30  $8,000
Q1 2011 48  $16,200

Gross revenue in thousands.

In the company's most optimistic outlook, it sees Local Deals entering 200 markets, serving 30 million subscribers, and bringing in $780 million annually, a 12-fold increase from today.

Foolish takeaway
Make no mistake about it, Travelzoo is not cheap. Shares are currently trading at around 86 times the past year's adjusted earnings. You may get a chance to buy the company on the cheap in the future, but then again, you may not.

With adjusted earnings having grown 147% last quarter, an excellent management team that has the company firing on all cylinders, and the possibility for a buyout still within the realm of reason -- Google (Nasdaq: GOOG  ) may see it as an enticing play since losing its bid for Groupon --Travelzoo still deserves a spot in the portfolio of the truly audacious.

Not sure whether you're sold on the Travelzoo growth story? Add the company to your Watchlist to keep tabs on it.

Fool contributor Brian Stoffel plans on finding his next travel deal with Travelzoo. He owns shares of Travelzoo and Google. Google is a Motley Fool Inside Value selection and a Motley Fool Rule Breakers pick. priceline.com is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 28, 2011, at 3:40 PM, jetamerica wrote:

    TZOO:

    The rest of the story. Margins less than when the stock had $33 mil. sales in 2005. In fact net earnings are still 30% lower than 2005.

    This stock is rank speculation. Not a bad company, but the only thing really holding up the price is that 35% of the float is short and the float is 5.5 million shares of the 15 mil. outstanding. Based on valuation and history, MAYBE a $30-35 stock at most-not a $1.5 bil company with sales of $125 mil.

  • Report this Comment On April 28, 2011, at 6:55 PM, MegaEurope wrote:

    Adjusted earnings are almost always a joke (try running the company without all the GAAP costs and see how far you get), and I don't think TZOO is any exception.

  • Report this Comment On April 29, 2011, at 9:46 AM, TMFCheesehead wrote:

    @jetamerica-

    You may very well be right, but then again, Local Deals represents a huge opportunity, and their Asia/Pacific segment is privately held by the Bartels and can be rolled back into the company once it is profitable.

    I keep referring to it as "audacious" because it is a stock that has much more risk built into it. Let's check back in 5 years and see where we're at.

    Brian Stoffel

    Brian Stoffel

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