Thursday, April 21, 2011

Shorts Being Sacrificed at the Alter of Travelzoo (TZOO)

I have not talked about this name on the website, but Travelzoo (TZOO) is an old momo stock which has come back to life; I have been watching the past 4-5 months in a bit of awe.  This is another example of where valuation simply does not matter (until one day it does), and trying to figure out a top based on traditional metrics has created immense pain for the 'smart money'.  TZOO is one of the most heavily shorted stocks in the market, and for obvious reasons - in mid March it traded at 40x-ish forward estimates on 2011.  That was when it was $45.   After tripling from $15 at the time Bernanke promised us QE2 in late August.  Over extended after a 200% run?  Not so fast.

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With today's 24%+ gain, the stock has doubled yet again in just over a month from $45 to $90.  From the original $15? 500% gain. 

The catalyst today is an earnings report, in which the company posted a solid beat of 9 cents; 37 cents v 28 cent expectation.  Even if we take the year end analysts estimate of $1.17 and say Travelzoo will make $1.40 (aggressive assumption) we are now talking a forward PE of 65.  But I guess in a market where Chinese internet stocks are trading at Price to Sales of 150, everything else is a bargain.  It's the 'relative valuation' game, 1999 style.  To reiterate, no one is saying these companies are not growing... we have simply returned to an era where no valuation is too high for a select group of about 50 companies.

Full report here.

  • For the quarter, the company posted revenue of $37 million and non-GAAP profits of 37 cents a share, well ahead of the Street consensus at $33.4 million and 28 cents. Revenue was up 30% from a year ago.
  • The company said North American revenue was up 23%; European revenue was up 53%. 
  • Travelzoo said it had 19.9 million unduplicated subscribers to its e-mail newsletters, up 6% sequentially and 12% from a year ago.  
  • In North America, total unduplicated number of subscribers was 14.8 million as of March 31, 2011, up 7% from March 31, 2010 and up 4% from December 31, 2010. In Europe, total unduplicated number of subscribers was 5.1 million as of March 31, 2011, up 29% from March 31, 2010 and up 11% from December 31, 2010.
  • “We kicked off 2011 with record revenues and record adjusted operating income. Subscribers grew by over 1 million, the second best performance in our company’s history,” said Chris Loughlin, CEO of Travelzoo. “We doubled adjusted operating income year-over-year as we continued to ramp up Local Deals, which are now live in 48 markets in 6 countries. North America revenues grew at the fastest pace in over 4 years. Europe saw the highest quarterly subscriber growth ever and returned its first significant quarterly profit."
Travelzoo Inc. is a global Internet media company. With more than 22 million subscribers in North America, Europe, and Asia Pacific and 23 offices worldwide, Travelzoo® publishes deals from more than 2,000 travel and entertainment companies. Travelzoo’s deal experts review offers to find the best deals and confirm their true value.

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