Is new blood the answer to Travelzoo's (Nasdaq: TZOO) financial slump?
There's a new CEO at the travel-deals publisher. Holger Bartel will take the helm in hopes of reinvigorating the company, which has missed Wall Street's bottom-line expectations in each of the past seven quarters. He replaces Ralph Bartel, who will stay on as chairman. The move should inject a fresh outlook and …
What's that? Bartel hands off to Bartel? Yep. Holger is Ralph's brother.
But in Holger's defense, this isn't just nepotism at play. Holger ran the company's North American operations through last year. He has also been sitting on the board for three years. He's qualified, though his promotion probably falls short of landing a visionary outsider who would have injected change into the struggling company.
After years of steady profitability, Travelzoo has posted a loss in the first two quarters of 2008. The costly expansion of the Travelzoo Top 20 email model into foreign markets originally took the blame for that slump. Since losses incurred abroad can't be used to offset Uncle Sam's claim on stateside gains, what seemed like an unbelievable effective tax rate of 98% in last year's fourth quarter has worsened to 164% and 168% rates through the first two quarters of this year.
However, Travelzoo has other problems besides simply making its overseas operations profitable. The company's anemic domestic growth must also be rectified. North American revenue inched just 3% higher this past quarter.
Even though the travel industry is soft, this should be a feast time for Travelzoo. Just check out the growth at Priceline.com (Nasdaq: PCLN). Hotels have plenty of empty rooms to fill, so outlets such as discount portals Priceline and Hotwire -- and travel-deals publisher Travelzoo -- are natural beneficiaries of a situation where supply outstrips demand.
Even more conventional portals such as Expedia (Nasdaq: EXPE) and, to a lesser extent, Orbitz Worldwide (NYSE: OWW) are winning over travel seekers. A lot of them are gaining strength from their faster-growing European operations, unlike Travelzoo, which hasn't been able parlay that growth into profits.
It's easy to see why Travelzoo got excited about expanding into Europe and Asia. China's Ctrip.com (Nasdaq: CTRP) has been a market darling. Even China's publicly traded laggard, eLong (Nasdaq: LONG), is at least making decent strides on the top line.
Many of Travelzoo's larger hotel sponsors, including Starwood (NYSE: HOT) and Hilton, have plenty of properties overseas to market. Today's move supposedly frees up Ralph Bartel to take a more active role in getting the company's international operations in line as his brother gets the flagship website back on track.
Either way, shareholder patience has to be running thin. If results don't improve in the near term, the next CEO is unlikely to be a Bartel.
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