A look at Travelzoo's performance
Travelzoo's revenue rose by a modest 23.5% to $35.2 million from the fourth quarter last year. The company's subscriber base for its North American operations grew by 10%, while its European operations saw a stupendous 26% growth, defying the European debt crisis.
This increase in subscriber count led to an increase in advertising revenue for the company, which in turn helped profits surge by 70% to $6.4 million. Yet the Street hammered Travelzoo's stock by more than 10% when revenue figures came in below analysts' expectations. However, since the fourth quarter is normally slow because of the holiday season, as most travel deals are sold off by then, I don't see this as a reason to worry.
Slow and steady wins the race
Rather, I like how Travelzoo is maintaining steady growth in revenue without sacrificing its bottom line. To put things into perspective, I'd like to compare Travelzoo's performance with its close peer Groupon
While Groupon's revenue has been rising at breakneck speed from just $81.8 million in the third quarter of 2010 to $430 million in 2011, its exhilarating growth has come at a price. It burned through hundreds of millions of dollars for six quarters in a row due to heavy marketing expenses.
Thus, I prefer Travelzoo's modest but profitable growth against Groupon's aggressive growth, which is highly unprofitable.
The Foolish bottom line
Despite the fact that Travelzoo's revenue was below expectations, the company seems to be a decent stock to hold in the long run. And this opportunity becomes even more attractive as its stock price has dropped sharply lately.
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Keki Fatakia does not hold shares in any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Travelzoo. 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.