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Summary

  • Low valuation, both in absolute terms and relative to comps, seems to undervalue business.
  • Roll-out of new booking engine may improve company revenue performance.
  • Popular, highly-rated, mobile app allows company to benefit from audience shift to mobile.
  • Macro factors/cyclical upswing could also boost TZOO.

Travelzoo (NASDAQ:TZOO) is an internet company that offers travel discounts to consumers in both the US and Europe. With a share price of just $17.09, the company has a market cap of $254M and an enterprise value of $197M, representing a EV/Revenue multiple of 1.26x and EV/EBITDA multiple of 7.51x. That is quite low for an Internet travel company and, while TZOO is a small player in the space, TZOO appears markedly undervalued relative to its public comps (data from Yahoo Finance, as of COB 4/21):

PricelineExpediaOrbitzTripAdvisorTravelzoo

Symbol

PCLNEXPEOWWTRIPTZOO
Market Cap$63.7B$9.35B$823M$12.1B$254M
Enterprise Value$58.2B$9.28B$1.15B$12.1B$197M
EV/Revenue8.56x1.95x1.36x12.8x1.26x
EV/EBITDA22.8x14.2x9.94x38.8x7.51x
P/B9.10x4.38x19.7x14.1x8.50x

With a database of 23.6 million e-mail subscribers, a popular and highly-rated smartphone app, and a focus on consumer discounts, Travelzoo can be thought of like a travel-focused version of Groupon (NASDAQ:GRPN). In fact, its legacy "local deal vouchers" are very similar to the Groupon printable coupons (but for hotels instead of retail locations). However, Groupon has lower EBITDA margins and is still valued at 1.5x EV/Revenue and 27x EV/EBITDA.

Travelzoo recently completed bringing a new booking engine online that will allow it to:

work with hotels that previously were unable to accept the local voucher format...[and] makes it easier for our subscribers to book a hotel deal on their mobile phones" (according to exhibit 99.1 of its April 17, 2014 8-K).

With a current valuation of a mere 7.5x trailing EBITDA, it does not seem like a potential boost from the new booking engine is factored into the company's current valuation.

Mobile commerce could be a positive driver for Travelzoo going forward. Their namesake mobile app has 4+ stars, as of 4/21, (a very good rating) on both iTunes and Google Play. More importantly, Google (NASDAQ:GOOG), (NASDAQ:GOOGL) reports between 500k and 1M downloads, and Apple (NASDAQ:AAPL) shows 611 ratings--implying that the app is being adopted by users. Even Expedia, a much larger competitor whose app has been selected as an "editor's pick" and is a "top developer" on Google Play, only has 5,000,000 - 10,000,000 downloads (~10-20x of TZOO). Industry leader Priceline's (NASDAQ:PCLN) popular Android comparison shopping app Kayak also has only 5,000,000 - 10,000,000 downloads on Google Play. On balance, Travelzoo seems to be holding its own (relative to its size) in mobile adoption against much larger competitors.

The last factor that might boost Travelzoo is industry cyclicality. The weak economic recovery has limited the growth of the domestic leisure travel market. However, according to the US Travel Association, the number of domestic leisure person-trips are expected to grow faster in 2014, 2015, and 2016 than the number of domestic business person-trips. While I could not find travel-specific data, the phenomenon of price-sensitive middle-class consumers cutting back, or trading down, on restaurant and retail spending is well-documented. Given Travelzoo's focus on price-sensitive consumers, TZOO is likely to disproportionately benefit if and when the recovery becomes more inclusive.

Source: Travelzoo: An Undervalued Internet Company