You've been shot with a tranquilizer dart, Travelzoo (NASDAQ:TZOO). Despite a seemingly resilient quarterly report from the online publisher of sponsored travel deals, the company still came up short in light of Wall Street's ambitious projections.
Sales for the quarter that ended in December soared 27% higher to hit $17.7 million for the period. Earnings more than doubled to $0.26 a share. Unfortunately, analysts were looking for Travelzoo to earn $0.28 per share on a 31% top-line gain. In short, Travelzoo let out a hearty roar, but the laughing hyenas drowned it out.
You've still got to like the company behind the weekly Travelzoo Top 20 email. Its simple low-overhead gimmick is a monster. The company registered 24.3% in net profit margins. There are only a handful of stateside companies that can consistently top that feat.
Margins could have actually been even better. The company took an operating hit in Europe, where its United Kingdom and Germany email products are just getting off the ground. Closer to home, revenues inched up just 23% higher, but the company is now pointing to a springtime launch of a new product.
Travelzoo's success is due to its model's simplicity. It doesn't take a whole lot of manpower to keep the model going. The company has only 82 employees. Meanwhile, it tacked on 443,000 new names to its mailing list this past quarter. That attractive dynamic resulted in $861,000 in revenues for each employee.
But is the model too simple? Sure. For years, I've wondered whether the company is susceptible to having more conventional travel portals -- such as Expedia (NASDAQ:EXPE), Priceline.com (NASDAQ:PCLN), or Sabre's (NYSE:TSG) Travelocity -- clone the "Top 20" emails. The same goes for larger search-based portals such as AOL and Yahoo! (NASDAQ:YHOO) that have active travel areas.
Yet instead, Travelzoo has fallen to the copycat antics of smaller companies, such as the Sherman's Travel Top 25 list.
Competition would hurt, of course. Travelzoo raises its ad rates annually, and last month, it inched its rates as high as 40% in some areas. A proliferation of cheaper outlets by hungrier competitors would sting Travelzoo's elasticity on that front.
Until that happens, Travelzoo still has a huge opt-in mailing list of more than 10 million willing recipients. Still, with rivals starting to drool over Travelzoo's beefy margins, let's hope that the company's new product launch in a few months is a success. Travelzoo is a much better animal when it's free from shackles and cages.
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Longtime Fool contributor Rick Munarriz has been inspired by a deal or two on the Travelzoo Top 20 list, but 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.
