Travelzoo (NASDAQ:TZOO) reported Q4 results yesterday morning, and the stock fell almost 14% in subsequent trading. Excerpt from Stifel Nicholaus analyst Scott Devitt's note to clients:
Reports 4Q Results Below Expectations
• We assess Travelzoo's fair value to be around current levels or $15-$18 per share in twelve months. We do not believe the business currently justifies a market cap above that level, as the sustainability of its market share is jeopardized by increasing competition stemming from low barriers to entry into the travel advertising space.
• Travelzoo exhibited a weaker than expected quarter, missing our EPS estimate of $0.14 by $0.04. The miss reflects a $584,000 loss relating to its UK subsidiary and the impact of the bankruptcy filings of two airline advertisers.
• Revenues for the quarter were up 32% year/year to $13.90 million, slightly below our estimate of $13.98 million. The U.K. business generated $380,000 in revenue during the quarter. Cash flow from operations were $2.0 million.
• For full year 2005, Travelzoo reported revenues of $50.8 million, income from operations of $14.9 million and diluted EPS of $0.45.
• One advertiser accounted for 14% of revenues in 4Q, and no other advertiser accounted for more than 10%. Travelzoo now reaches 9.7 million subscribers in the U.S. and U.K, adding about 904,000 new subscribers in the quarter.
• For 2006, we are lowering our EPS estimate from $0.70 to $0.65. For 2007, we now estimate EPS of $0.82, down from our prior estimate of $0.86. We rate shares of TZOO Hold.