After years of helping penny-pinchers with getaways to exotic locations, travel publisher Travelzoo
The company pulled no punches in the release.
"While we expect these initiatives to have a material negative impact on our earnings in 2007 and 2008, due to significant expenses related to subscriber marketing campaigns in new markets and operating losses during the start-up phase, we believe that it is an attractive strategy for Travelzoo in the long term," CEO Ralph Bartel noted in the announcement.
Sure, it costs money to set up camp in new territories. However, not all of the overseas expansion plans were new. Travelzoo issued a press release when the office in France opened in March. A month later, it revealed its entry into Hong Kong, a service that was eventually launched last month.
Japan is new. The office will open in two months. Unfortunately, near-sighted investors get spooked by terms like "material negative impact" and "significant expenses" when they are buying into a high-margin company.
Growing its reach overseas is important. The company launched its site in the United Kingdom two years ago. It followed that with steps into Canada and Germany last year. However, the company's clever concept -- packaging sponsored travel bargains in its weekly "Top 20" email -- remains mostly a domestic phenomenon. Through the end of March, Travelzoo has amassed a mailing list of 10.6 million willing North American recipients. The free subscribers totaled less than 0.8 million in Europe.
The moat is also questionable. It is way too easy for a rival to copy the Travelzoo playbook. Smaller sites like Sherman's Travel Top 25 are giving it a go, and even Priceline.com
Sure, it may be a conflict of interest for a mainstream portal like Expedia
By casting its warning net so far -- a "material negative impact" in 2008 seems so far away -- Travelzoo is spooking away investors that remember when the company's stock was on fire as one of the biggest gainers of 2004. Then again, 2004 also seems pretty far away these days.
Bon voyage, Travelzoo.
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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.