What a Difference a Month Made for Travelzoo, OpenTable

 |  Includes: OPEN, TZOO
by: Long Value

I've gotten a lot of questions about sharing data on Travelzoo (NASDAQ:TZOO) and OpenTable (OPEN) since I posted my articles several weeks ago on my blog, so I wanted to provide a brief update. I was cautious on both TZOO and OPEN due to their enormous runs prior to my posts, although I had taken a small position in TZOO to get a play on the deal hype at a significantly cheaper valuation (there was more analysis than this, but for simplicity sake, let's leave it at that). At that time, I was more impressed with the deals and the promotion I had seen out of OPEN as they had quickly ramped up their high-end restaurant offerings to a number of cities and had been expanding their city base at the rate of about 1 new city per week. They also started sending spotlight deals to anybody that was registered on the OpenTable website to help grow the offering by word of mouth.

As of a month ago, TZOO had been lagging pretty substantially. They were offering new deals very sporadically, running in only a few markets where they had not been selling very impressively. It was also nearly impossible to even find their "local deals" on their website homepage. While the local deals service was highly complementary to their existing travel offerings, they were not promoting it well and it wasn't exactly "snowballing" very fast.

What a difference a month makes! About a week after I wrote the two articles, I spoke with another analyst that was more bullish about TZOO and their offerings; he got me thinking more about the value proposition that TZOO offered and their ability to grow above and beyond the purely restaurant offerings that OPEN brought to the table (no pun intended). I maintained, and still do, that it will be tough for OPEN to widen their offerings past higher end restaurants, but what I had not considered as thoroughly is whether diners would get high-end restaurant fatigue. Although still too early to tell definitively, with 8-12 full weeks of data from many OPEN cities, it appears this may be the case. In every city where spotlight is offered, except NYC, the average revenue/week has been dropping since they started offering deals in the city (all spotlight deals, except one week in Chicago, have been $25, making the data easy to track). Several cities have dropped sequentially every week since spotlight began, with the losses between week 1 and the current week being between 30 to 40%.

In the meantime, TZOO has gone on a complete assault on the daily deal space, launching to several new cities and having blowout week after blowout week. With an e-mail distribution list that boasts over 22 million subscribers, not only are people used to getting e-mailed by TZOO, they are now becoming more familiar with the daily deal space as the Groupons and Living Socials of the world become more well known (anecdotally, my mom asked me if I had "heard about these Groupon things" the other day, so the word has officially gotten out). TZOO has also been offering a wide array of deals, similar to Groupon...everything from Mani/Pedi deals to indoor skydiving and wine & cheese classes. Because of the price lumpiness of TZOO deals, it's not as easy to get an average deal stat, but there has been noticeable growth in the very successful deals (those selling +$50K gross revenue).

What has this done for TZOO from a revenue perspective? Since their first deal was offered in Des Moines on July 29th through the end of Q3, they sold ~$850K (gross rev.) of deals. Through not even three weeks of Q4 and into several more cities, they have made over $1MM in gross revenue with seven deals grossing over $50K each. It will be an ongoing experiment through the rest of the quarter to see how many more cities they launch and if the deals keep selling as well as they have been, but the first few weeks of Q4 have been extremely encouraging, to say the least. From a valuation and (less) hype perspective, as well as an offerings and distribution perspective, I still believe the best way to play the trend in the daily deal space is TZOO. If they can continue at their current rate in just the cities in which they currently operate, assuming a 30% net margin, TZOO should have an additional $0.10-0.12 of EPS for the quarter.

Disclosure: Author has a long position in TZOO; no position in OPEN