It's off to the races again for Travelzoo
Analysts were overly anxious on the top line, though. They were expecting a 36% boost in revenue, and Travelzoo mustered only a 31% advance to hit $17.6 million.
How can the pros find themselves at opposing ends -- both wrong -- on this stock? The answer lies in the Travelzoo model itself.
The company puts out a weekly "Travelzoo Top 20" email in which sponsored travel bargains get sent to more than 10 million recipients. The simplicity of the model and thin operating overhead has given Travelzoo the ability to carve out fat margins in the travel publishing space. In its North American stronghold, operating margins clocked in at an impressive 50%.
Over in Europe, which accounts for just a little more than 5% of the company's revenue mix, the company is still running in the red, despite a 162% top-line improvement. But give Travelzoo's efforts abroad a little time. It has been in the United Kingdom only since May of 2005 and just launched a German site last month. In time, Europe should be like the stateside market, in which every incremental opt-in subscriber is more profitable than the one that came before.
I know what you're thinking. Travelzoo is wielding jaw-dropping gross profit margins of 98.7%, and it's really just a matter of time before the competition jumps in. Conventional travel portals such as Expedia
Well, there hasn't been a legitimate threat on that front, and Travelzoo's power grows with every passing quarter. It's the brand that consumers have come to rely on for their last-minute travel deals -- with the possible exception of Southwest's
On the travel provider side, Travelzoo has become a welcome way to clear out excess inventory at rock-bottom prices. As you can imagine, an empty hotel room or vacant flight seat is a total wash for a hotelier or airline. Discounting isn't the ideal solution, but sometimes, it's the only way to fill vacancies.
As for today's boost, it's worth keeping in mind that Travelzoo's past is a volatile one. We saw the company become one of the biggest winners of 2004, only to crash with a thud in 2005. It has had a steadier run through 2006, though it does tend to have its ups and downs as we head into its quarterly reports. Investors may not relish that kind of rocky trading, though it was one of the main reasons why I went long on the company in the new Motley Fool CAPS stock-rating service. Yes, I'm winning against the market today, but knowing Travelzoo's camel humps of trading activity, it's anyone's guess as to where I'll be in three months for its next report. Try your own hand at it by going to the CAPS site -- it's absolutely free.
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. T he Fool has a disclosure policy.