Is Jim Cramer Wrong About Travelzoo?

Travel deals publisher Travelzoo (Nasdaq: TZOO  ) made its way into Mad Money's lightning round last night.

Jim Cramer wasn't impressed.

"That last quarter was not what I wanted to see," he told the caller. "I'm not playing that short squeeze game anymore."

He then proceeded to pound the "don't buy" button for theatrical emphasis.

He's certainly right about the first part of that statement. Travelzoo posted a shockingly disappointing quarter last month. Revenue may have climbed 34% -- and earnings soared 51% -- but Wall Street was holding out for more. It's easy to see why Wall Street was spoiled, given how Travelzoo had been blowing away the pros in the past.

 

EPS

EPS Estimate

Surprise

Q1 2010

$0.15

$0.07

114%

Q2 2010

$0.20

$0.11

82%

Q3 2010

$0.22

$0.11

100%

Q4 2010

$0.23

$0.20

15%

Q1 2011

$0.37

$0.28

32%

Q2 2011

$0.30

$0.39

(23%)

Source: Earnings.com.

Travelzoo's knack for delivering guesstimate-thumping results was the main catalyst for sending shorts scrambling to cover their positions -- so is Cramer right about the second part of that statement?

I don't think so.

Another major catalyst in sending Travelzoo's stock higher since bottoming out in the preteens last summer was its move to begin marketing the same kind of prepaid vouchers for marked-down local experiences that have made Groupon and LivingSocial overnight sensations.

Investors have cooled on these bandwagon plays. Travelzoo and dining reservations specialist OpenTable (Nasdaq: OPEN  ) have surrendered 57% and 44% of their frothy peak values, respectively. Given the way that Groupon has been losing money, one has to wonder if it, too, has peaked.

Who are we kidding, though? The moment that Groupon and LivingSocial go public, investors will flock back to these relatively cheaper sympathy plays. Amazon.com (Nasdaq: AMZN  ) has bought into LivingSocial -- twice -- and Google (Nasdaq: GOOG  ) tried to acquire Groupon last year.

Then again, seeing how Google doesn't have a problem paying $12.5 billion for a patent-rich smartphone manufacturer, why wouldn't Google try to snap up Travelzoo or OpenTable before the sympathy plays kick in after Groupon's ballyhooed IPO?

The catalysts are certainly there for Travelzoo to send shorts covering. It only helps that the number of shares sold short has nearly tripled -- from less than 1.7 million to more than 4.4 million -- so far this year.

Oh, and what if Travelzoo resumes its analyst-besting ways in two months? If its most recent quarter was simply an exception rather than a new trend, Travelzoo shorts will be right where the longs want them.

Is Travelzoo a buy here or is there more to come on the downside? Share your thoughts in the comment box below.

The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of OpenTable, Travelzoo, Google, 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. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (7)

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  • Report this Comment On August 16, 2011, at 2:32 PM, syberdentist wrote:

    I certainly think TZOO is a buy here. To an extent Cramer is right but he is wrong on so many levels. Interestingly on his show 2/16 he was bearish and on 2/25 he was extremely bullish on Tzoo. The stock was then $42. He pumped the stock when it was 75, 80 and 85!! When the P/E was ridiculously high but now that the stock is trading at 1/2 the value, he has disowned the stock which totally doesn't make sense.

    I understand playing short squeeze is not for everyone but nonetheless this stock is a cheap buy at this price and at the growth projected for 2012. I agree the next quarter will give a good clear indication of where this stock is headed but from preliminary PR it looks like their local deals has picked up tremendously.

    Also things to consider prior to Oct earnings release

    - Summer is when people travel and spend

    - Most deals on Travelzoo are not for cheap $5 lunches so its not students and lower middle class that's buying their deals.

    - Most who get on Travelzoo will go back to buy their deals. They have good customer service on Facebook

    - Europe travels extensively in July/Aug. Sure their economy is bad but they don't take their vacations lightly.

    - They are expanding and its a sign of confidence

    Amazon went through this phase when they had a bad quarter and the stock tanked. It went right up after the next quarter when people realized their revenues and growth was strong. The same should apply to Travelzoo after their Oct earnings.

  • Report this Comment On August 16, 2011, at 2:40 PM, jimmy4040 wrote:

    Putting Cramer aside where he belongs, these are strictly up market stocks. You ride them up but when the whole market turns, you dump them. Why ride them back down again? There's no unique business model that would cause TZOO to be a winner in a downturn.

  • Report this Comment On August 17, 2011, at 1:57 AM, rodessa wrote:

    I do think that it is a new trend forTravelzoo as for Lululemon as TOO BIG price earning ratios, even with the actual pull-back in TZOO, as austerity in Europe, even for the rich as increasing of the taxes, not the same as in the US, even BERLUSCONI in Italy has increased the taxes on the richest, as in other countries in Europe.When you see the PER of TZOO or LULU(more than 60), and the one of COCA, less than 10, there is a great place for a lost of fat, as Europe is going to more austerity and the US to more poverty, but COCA is eveywhere in the world, and for me a company five times more interesting to buy,TZOO as LULU or others with too big P.E.R. good to short.

  • Report this Comment On May 19, 2012, at 10:42 PM, guilou0875 wrote:

    I guess JIM was right, it still going down, the resistance is around $25 it's a very good time to buy and hold on to them. The local deals is something they are offering seems to attract a lot of users and vendors in the US. They broke the $100 mark before and I think they can do it again.

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