Google (NASDAQ:GOOG) purchased Zagat yesterday, for an undisclosed price. The purchase had little effect on the company's stock yet weighed heavily on two online deal company's stock. Travelzoo (NASDAQ:TZOO) and OpenTable (NASDAQ:OPEN) both posted a large amount of loss, which appears to be the effect of Google purchasing Zagat. Below is a look at the Google purchase and its potential affect, or lack of, on these two companies that investors have assumed will have an impact on business.
The Google purchase of Zagat is yet another great acquisition by the technology giant to further develop its Daily Deals and Google Places. Zagat offers online reviews of restaurants and bars provided by the consumer. There are several different ways consumers can choose the desired restaurant then they are capable of reading reviews by users who have offered their opinions. This service offers Google with a well developed rating based platform that can be incorporated with its daily deals and Google places. This will give the consumer more details on the places being searched, since Google search now provides users with local business information. The company will have a more in depth rating system that is expected to be the "cornerstone" of the local offering. To read more from the NY Times on the purchase and its potential benefits click here.
This news obviously affected OpenTable and Travelzoo as both companies posted a large amount of loss. This makes me wonder how this acquisition will affect the success of these two companies both short and long term.
Travelzoo is an online deal company that informs over 24 million subscribers of the best local and global deals available to purchase. I believe the Google acquisition will have little to no impact on this company. Zagat is simply a review service that will give consumers details and opinions on local businesses that return on searches from Google. Travelzoo places a high emphasis on local deals but it also provides vacation packages where Travelzoo employees develop the best of packages for the consumer. These packages can include a resort, an activity, and meals which are much different versus providing reviews on local businesses or restaurants.
The company is growing at a rapid rate as it expanded into 27 additional markets during the second quarter alone. The company also grew revenue by 34% and net income by more than 50% during the second quarter year-over-year. Despite this growth, the stock has dropped by more than 60% since earnings were announced because of high expectations. Therefore, I do not expect this acquisition to have any effect on Travelzoo with its stock so low. The company is expanding and is now global, it utilizes employees to develop these very cheap deals for its customers. The stock dropped 7.19% on the news of Google's purchase but the companies are much different and as of now, I do not see the purchase having any affect on Travelzoo's business.
OpenTable and Travelzoo, surprisingly, trade very similar, despite being completely different companies. The company announced second quarter revenue and net income gains of more than 50% year-over-year. But like Travelzoo, the news was considered a disappointment because of high expectations. Since August 2, when earnings were announced, the stock has lost nearly 20% despite such solid results. Investors trade this stock on speculation, which sometimes provides gains but can also produce loss. Therefore, the stock was hit hard after the announcement of Google's purchase as it posted a loss of more than 8%.
I do not believe the acquisition of Zagat will have any effect on OpenTable during the immediate future, 2 years, because the companies are very different. OpenTable is an online company that offers reviews along with extensive details on restaurants but its focus centers on making online reservations. The company provides reservation management to over 20,000 restaurants which is much different than a review based company.
Regarding factual information related to restaurants, and making reservations, no one comes close to OpenTable. I do not expect the company to experience any kind of business loss as a result of Google and Zagat, because I do not expect Google to enter the restaurant reservation business anytime soon.
Google is one of the most innovating companies in the history of technology and has the ability to utilize Zagat in whatever way it desires. Therefore, I do not put anything past Google and what it may try and develop with Zagat in the future. What I do know is that it would take Google a substantial amount of time to cause any problems for OpenTable or Travelzoo.
Travelzoo has 24 million subscribers and focuses on the quality not quantity of the package. I believe 24 million is a small number considering the global presence of the company, therefore I expect the subscriber base to substantially grow over the next several years. OpenTable works with 20,000 companies and has direct access into each computer system. With the number of people that use OpenTable I can not imagine a large number of companies withdrawing from the service.
I have no doubt that Google will create something special with Zagat but I do not believe it will affect the business model of these two companies. It would be far more beneficial for Google to create a service that offers a review on nearly every business, both local and corporate in America, which I believe it could easily achieve and also benefits its new GOOGLE+ social media platform.
Google has big plans and usually incorporates its service together, in some way, therefore I doubt that Google's primary objective is to create a business model that mirrors OpenTable or Travelzoo. It would take too long to create a customer base for services that these two companies offer and besides, Google sets trends, it doesn't follow them.
Disclosure: I am long GOOG.