Travel deals publisher and Groupon coattails hopper Travelzoo
This morning's report would seem to be spectacular if you didn't know what the expectations were. Revenue climbed 34% to $37.6 million, the company's headiest growth in four years. Despite investing to expand into 27 new local deal markets and testing its first ever television spot, net margins improved with earnings soaring 51% to $4.9 billion -- or $0.30 a share.
However, the shares opened 30% lower today because Wall Street was banking on a profit of $0.38 a share on $39.9 million in revenue.
Missing on one end of the income statement is painful, but missing on both ends is an unforgivable mistake.
It's easy to fathom the bottom-line miss. Travelzoo explains that its television ad test set it back $0.07 a share. Travelzoo also expanded its Groupon-esque Local Deals offering by breaking into 27 new markets during the last three months. Anyone that glanced at Groupon's prospectus last month knows that offering pre-paid discounted vouchers is a sweet business but initial expansion is expensive. Groupon's still losing money!
Cynics will argue that analysts knew this, baking it into their models. They have a point. The real crime, though, is that even with all of these investments in growth that Travelzoo still came up short of the 42% top-line spurt that the pros were targeting.
Offering travel bargains is becoming a crowded category.
Many of Travelzoo's Local Deals are dining and spa experiences, tossing the company into the same ring as OpenTable
There are still some encouraging signs for those who can get past today's nasty carnage. Revenue grew 34%, even though its subscriber base only grew by 15% to 20.7 million deal seekers. In other words, the company is milking more out of the average opt-in e-mail recipient. It also needs to be reiterated that net margins did widen despite all of the growth initiatives bankrolled during the quarter. Finally, Europe continues to be profitable. This is a move that helps decrease Travelzoo's effective tax rate since it couldn't use operating losses overseas to offset its domestic tax bite. Pre-tax profits rose just 28%, but the bottom line improved by far more than that since that ultimate tax tab for both quarters is nearly the same.
Does that third point shoot down the second one? Yes, but these are the silver linings that investors have to deal with on a day with a 30% deluge.
Is Travelzoo a buy here, or will is there more to come on the downside? Share your thoughts in the comment box below.
Motley Fool newsletter services have recommended buying shares of OpenTable and priceline.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.
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