Once again, Travelzoo (Nasdaq: TZOO) is leaving analysts stranded on the tarmac.

The travel deals publisher delivered another market-thumping quarter this morning. Earnings from continuing operations more than doubled to $0.23 a share, well ahead of the $0.20 a share that Wall Street was targeting. The pros did nail Travelzoo's 20% spurt to $28.5 million on the top line.

What's behind the site operator's margin expansion and Wall Street's inability to grasp the momentum? We all know that this is a scalable model. Travelzoo runs a pretty lean operation, fueled by its flagship Top 20 email that goes out weekly to the now 18.9 million opt-in subscribers. The bottom line is supposed to grow quicker than revenue. However, the pros may be underestimating the effective tax rate potential for what is now a profitable operation overseas.

As a stateside company, Travelzoo wasn't able to use losses in its fledgling European operations to offset the tax bite on pre-tax profits in the United States. There was a point three years ago where Travelzoo was paying more in taxes than it was reporting in pre-tax income. Really.

The climate is considerably kinder now that Travelzoo is marginally profitable in Europe and has shed its profit-draining operations in Asia.

The end result is that the marketer of sponsored travel bargains has spent the past year obliterating analyst profit targets.

  EPS Est. Surprise
Q1 2010 $0.15 $0.07 114%
Q2 2010 $0.20 $0.11 82%
Q3 2010 $0.22 $0.11 100%
Q4 2010 $0.23 $0.20 15%

Source: Yahoo! Finance.

This morning's beat was tame compared with previous quarters, but that's not the only reason why shares opened 11% lower this morning.

The number of Travelzoo's registered deal seekers was only marginally improved from the 18.7 million willing recipients it watched three months earlier. Last year's introduction of the Groupon-esque Local Deals should have boosted viral nature of signups. A press release last week also indicated that Travelzoo had landed more than 100,000 new registrations last month in the United Kingdom alone. Obviously that will bode well for the current quarter, but it's disappointing to see a net gain of just 200,000 this past quarter.

Then there's also the share price. The stock has more than quadrupled over the past year, pricing the shares at nearly 50 times forward earnings. That's a stiff multiple in this niche. Market darlings priceline.com (Nasdaq: PCLN) and China's Ctrip.com (Nasdaq: CTRP) are growing revenue faster yet they command much lower earnings multiples.

Then again, Travelzoo is unique. It's in the perfect position to cash in on the Groupon model. Being a niche specialist has gotten investors excited about the high-margin potential of selling pre-paid experience vouchers. Whether it's OpenTable (Nasdaq: OPEN) in upscale dining or The Knot (Nasdaq: KNOT) in wedding planning or Travelzoo with local getaways, the room for further margin expansion is there if the companies execute according to plan.

Travelzoo's shares aren't as cheap as its travel deals, but it's also backed by a moat that's more scenic than skeptics think. Expedia's (Nasdaq: EXPE) Hotwire has tried to give it a go with Travel Ticker, and priceline.com has been cranking out PriceBreakers for years, but Travelzoo continues to pad its lead.

It's a bumpy flight this morning, but the flight plan is still intact.

Is Travelzoo for real or a house of cards waiting to crumble? Share your thoughts in the comment box below.

OpenTable is a Motley Fool Rule Breakers pick. priceline.com is a Motley Fool Stock Advisor recommendation. Ctrip.com International is a Motley Fool Hidden Gems selection. 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.

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. The Fool has a disclosure policy.