Travelzoo (Nasdaq: TZOO), the online travel and entertainment information company, came out with fourth-quarter results where revenue failed to meet analysts' expectations. This led to an unceremonious bashing of the stock on Wall Street. Nevertheless, as fellow Fool Rick Aristotle Munarriz believes, I don't think this company is toast. The company is on the right track and has the potential to deliver good returns in the long run.
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 (Nasdaq: GRPN), which operates a similar type of business.
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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