Collecting passport stamps doesn't come cheap for Travelzoo
Revenues inched 17% higher to hit $19.7 million, but net income actually dipped slightly for the March quarter. Yes, earnings on a per-share basis rose by a penny to $0.25, but that was the result of fewer shares outstanding at Travelzoo.
Wall Street was expecting more out of the company behind the popular Travel Top 20 email that goes out every week to more than 10 million willing recipients. The pros figured that the company would earn $0.32 a share on $20.4 million in revenues.
So where did Travelzoo go wrong? Despite a record $6.7 million spent on subscriber acquisition and brand marketing, the top line just kept up with its side of the bargain. True, Travelzoo can boast about growing online ad sales for an impressive 35 consecutive quarters, but investors aren't buying into Travelzoo to see flat bottom-line growth and top-line growth in the teens.
However, optimists have a good reason to cut Travelzoo some slack. Pretax profits grew 7% for the quarter. The line item disintegration takes place right after that, where a heavier tax bite turned profit growth into a net income decline.
The culprit here is the operating losses overseas. The company is taxed based on its stateside operating profit (which rose by 11% in North America). It is not recording a tax benefit on its international deficit. That should give investors some hope, especially as its operations in Europe and Canada improve over the coming quarters.
Travelzoo is a unique company. It has a high-margin, no-frills model that is very different from conventional portals like Expedia
The bigger threat may come from providers reaching out to consumers more effectively. However, few have matched Southwest's
Is this a disappointing quarter out of Travelzoo? You bet. However, things may start to change once those passport stamps start coming in other colors besides red.
Longtime Fool contributor Rick Munarriz has been inspired by a deal or two on the Travelzoo Top 20 list but 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.