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Travelzoo (TZOO): Are Analysts Overshooting?

|Includes: iShares Target Date 2035 ETF (TZO) — I posted a comparable public companies analysis of online travel companies in which metrics such as growth rates and margins are included.  Note that the growth rates for Travelzoo (NASDAQ:TZOO) from the current fiscal year to the next fiscal year show a significant jump from the previous fiscal year to the current fiscal year growth rates.  These figures have taken out the effect of a one time cash settlement payment of $20M to the state of Delaware pertaining to an unclaimed property issue following a 2002 merger.  I have not included quarterly data, but these seemingly lofty growth rates do reflect how TZOO performed in its most recent quarter.  TZOO’s revenue growth of 30% in Q1 was well received (at least initially) by the market after the company reported in late April.  Their EPS growth was huge, nearly double that of 1Q10.  In its earnings report, TZOO also announced that it reached a milestone of 22m subscribers globally.  The company is doing well in Europe as well, with a 53% revenue growth for Q1 compared to a year ago.

I have to wonder, however, if these growth rates are really that sustainable.


EBITDA growth for FY11 is 89%, well above that of its comps; EPS growth remains nearly double.  Its forward PE is roughly 43x, again well ahead of that of its comps.  For instance, PCLN has a forward PE of 26x while EXPE and OWW are both at 14x.

TZOO’s numbers are definitely solid and with these lofty growth rates you might wonder if TZOO could become the next PCLN.  I guess time will tell, but I am more inclined to believe that it won’t happen.  I don’t see any real factor that differentiates TZOO from other online travel sites.  I have used Expedia, Orbitz, Priceline, and a few other travel sites like Travelocity multiple times throughout the course of my life, but I have never touched Travelzoo.  I still don’t see a particular reason why I would use Travelzoo over any other travel site out there.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.