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American Technology Research analyst Mark Mahaney had a Sell rating on Travelzoo (ticker: TZOO) prior to its earnings miss today. Here's an extract from what he wrote to clients in reaction to the results:

TZOO: What Happens When a 73X P/E Stock Misses

TZOO reported a Clear Miss quarter -- $11.2MM in revenue came in 10% below the $12.5MM consensus and $0.10 EPS came in 30% below the $0.14 Street estimate. Fundamentals were mixed – Y/Y revenue growth decelerated from 102% to 74%, while organic operating margins surged Y/Y from 27% to 39%.

TZOO corrected 18% intra-day on the results. We view this as Another Big Valuation Reality Check for TZOO. Despite being down 37% intra-quarter, TZOO was still sporting a 73X P/E multiple going into the numbers. March quarter fundamentals weren't uniformly bad; they were mixed. But a 73X P/E doesn't support mixed results. We also view the significant and increasing customer concentration (one client accounts for 18% of revenue, and the top two account for 30%) as a major Red Flag. Finally, the client count is declining (down 9% Q/Q to 310) while customer acquisition costs are rising (up 52% Q/Q to $2.59). These leading trends ARE negative.

So we'll reiterate our Sell rating. Our estimates decrease -- 2005 EPS from $0.69 to $0.52, with both revenue estimates declining and operating expense estimates increasing. Accordingly, our price target decreases from $28 to $21 -- 40X our 2005 EPS.

Source: Sell-side reaction to Travelzoo's - TZOO - earnings miss