Is Everybody Else Catching Up to Travelzoo?

Travel portals and flash sale websites are trying harder to reach penny-pinching travelers.

Expedia (Nasdaq: EXPE  ) is working with Groupon for Groupon Getaways, keeping up with LivingSocial's homegrown travel initiatives. priceline.com (Nasdaq: PCLN  ) rolled out Hotel Bid Alerts last month, allowing users to be emailed when a certain price point has been accepted as a winning bid in an area hotel category.

All of this jockeying for position would seem to make travel deals publisher Travelzoo (Nasdaq: TZOO  ) feel more than a little vulnerable. Travelzoo, after all, seemed to have the market cornered as a vocal promoter of published deals.

Can it survive? Of course. Can it thrive? Have you seen Travelzoo's performance lately? The publisher's been blowing through Wall Street's profit targets over the past year and change, just as social couponing sites gain in popularity and traditional portals aim to appeal to opportunistic bargain hunters.

Smarter competition isn't hurting Travelzoo. If anything, it's drawing more attention to the niche and allowing the site to learn new tricks.

Travelzoo didn't roll out the Groupon-esque Local Deals until just last year, but it's already moving the needle.

A recent study by deal aggregator Yipit Data revealed that the average Travelzoo prepaid offer is outselling the average travel deal through Groupon and LivingSocial. The high-margin nature of these vouchers has helped propel the valuation of the all of its promising players.

Travelzoo's stock has popped more than sixfold since bottoming out last summer, and it now trades for 32 times next year's projected profitability. The key here is that Travelzoo wasn't fetching a forward earnings multiple of six before the move. Analysts have simply had to jack their guesstimates higher with every market-thumping quarter delivered by Travelzoo.

Deals are big business, explaining why Amazon.com (Nasdaq: AMZN  ) has been a big investor in LivingSocial and why a profitless Groupon is going public at a lofty price.

There's big money to be made in getting you to your next getaway cheaply, and Travelzoo is lucky enough to have arrived fashionably early.

Most analysts feel that Groupon's IPO is overvalued. Agree? Disagree? Share your thoughts in the comment box below.

Motley Fool newsletter services have recommended buying shares of priceline.com and Amazon.com. 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.

Longtime Fool contributor Rick Munarriz is a fan of discount sites, and he's already tracking local deals through Groupon and LivingSocial -- as well as Travelzoo. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On July 08, 2011, at 4:45 AM, alexreising wrote:

    "recent study by deal aggregator Yipit Data revealed that the average Travelzoo prepaid offer is outselling the average travel deal through Groupon and LivingSocial. The high-margin nature of these vouchers has helped propel the valuation of the all of its promising players."

    Can you please qualify, "High Margin"?

    I think Travelzoo has made a huge mistake entering the local deals market, where they're bound to simply expand their workforce in order to sell lower and lower margin products as they arrive to every new door only to find that the harlots from groupon, livingsocial, urbandelight, and every other daily deals company has already accosted them. If groupon isn't making money at daily deals when they're taking a near 50% rake per deal, it's obviously neither a scalable or profitable business model. If you examine Travelzoo's revenue per employee it has reduced by nearly 20% YoY. as they errantly focus on competing with losers like groupon and livingsocial, instead of focusing on their core market which should always be selling ads and travel deals to a subscriber base.

    Not only are they going to be savaged in the daily deals markets, and the OTA space, but they are pouring new money into their super deals flight and vacation package meta search tool that's really no different than Kayak.

    What is the impetus to drive their profit margins higher? I can certainly appreciate the author's implication of future growth ahead, certainly that's not difficult with an 18m subscriber base, but the key is how hard it it is to accumlate and maintain that subscriber base, how valuable that subscriber remains in the eyes of their clients and how the heck they plan to defend their turf from being raped and pillaged by new market entrants.

    There is oversupply in both the daily deals market and the meta search / OTA aggregator space.... that's excellent for consumers and for business looking to advertise and get the best deal as multiple firms compete for their business... not so good for the profit margins of the ad companies.

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