|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||111||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
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What could possibly be
interesting about a travel media company in a recession/depression type
environment? Well with a combination of the VIC value meter at 58,
TZOO's valuation, an highly attractive business model, we think the stock looks very interesting as it has fallen from $100 less
than four years ago to $7.90. Why? The company decided to expand its highly
attractive business model overseas combined with start up costs and a thin
float. International operations are masking the tremendous economics of the
Ralph Bartel, the founder started the business with $10,000 in 1998 and is now worth well over $200mn purely from TZOO (TZOO peaked at $1.6bn mkt cap and today is $100mn). Ralph Bartel bootstrapped the business and owned 90% on the IPO, then did everything right sold half his position after the stock went up 5x, then did a secondary, then stock fell to $17-28 range bought back $50 million worth of stock, then fell to $6.50-10 and has been a consistent and large buyer of stock since March 2008 at prices ranging from $6.50-10. Bartel is a Swiss trained PhD in economics and given what we have uncovered so far would consider him highly focused/accurate (they release and give a lot of metrics to understand the business), driven by ROI, and surrounds himself with top notch talent. We think TZOO has a very attractive risk/reward profile, so much so that despite having a huge drag on earnings from international expansion the company still shows up on the "Magic Formula" List.
the world's largest travel media company in terms of email subscribers to their
various letters and have nearly 50,000,000 visitors globally to their various
web sites/email subscriptions per month. Conceptually the business is relatively
easy to understand. Travelzoo in
International is making progress: Canada has 700,000 email subscribers, Asia/Pacific: Australia, China, Hong Kong, Japan, and Taiwan just crossed 1 million email subscribers in August (all fairly new within last 12 months), Japan went from -0- to 200,000 subscribers in 4 months earlier this year.
In the UK
Market (shows great traction and was the first international operation in 2005)
TZOO was rated #1 out of 1,025 travel companies August 2008 (received 2x the
traffic of Expedia.co.uk) by Hitwise. Travelzoo.co.uk received 1.6 million
clicks on their email list in August 2008. 36% of
that our new German and French websites have seen excellent user adoption, since
launching in November and January respectively. We are particularly pleased to
see that more than 30% of our 7 million visitors came directly to Travelzoo's
websites by typing in our web addresses. This illustrates the strength of the
relationship between our users and our brand." Chris Loughlin MD TZOO
One cool feature the site has is called "Deals Near You" its at www.travelzoo.com. The site takes your IP address and will show you all the bargains located within 90 miles of where you are on a map.
Travelzoo is an outstanding business: over a 5 year period it has generated aggregate revenues of $248mn with $42mn in free cash flow. While revenue grew from $18mn to $80mn and total CAPEX over this time period was $1mn. ROIC from 2001-2007 averaged 49% while ROE averaged 42%, respectively.
TZOO has the widest
distribution by far, with
is expanding globally: http://www.travelzoo.com/international/ (
Looking at a few key points regarding international expansion:
By the end of the year, TZOO will be launching Metasearch on their site. This is a product similar to Kayak/Sidestep for which TZOO invested $500K and is in addition to their advertising business. Metasearch will allow them monetize the current traffic to their website more effectively.
US $2+/- EBIT masked by
Can Europe get to profitability in 2009? Will the market give any credit to expanding this highly attractive business into Asia with startup costs likely to continue into 2009? We think the international operations despite losses are worth a positive amount..UK/Canada are likely very profitable so the road map is there for international success.
CEO controls the company with 60% ownership. He appears fair. He is the 3rd highest paid employee even though he is Chairman/Founder and until recently CEO. He has done the right things for the business and has not self enriched himself at the expense of shareholders. We think a low ball going private is unlike give: the repurchase of $50mn in stock $17-28 range 1-2 years ago, a price range of $7-100 over the last several years, and the CEO's aggressive insider buying up to $10. If a going private were to occur we suspect it would have to be at least high teens.
Disclaimer: This does not constitute a recommendation to buy or sell this stock. We own shares of the company, and we may buy shares or sell shares at any time without updating the board.
Chairman/Founder very aggressive buyer of stock from March-September 2008 $6.50-10
Company has bought back $50mn worth of stock between $17-28
"Magic Formula list" 2001-2007 ROIC 49% and ROE 42%
20% of the market cap cash
$2 +/- in EBIT from US Operations
International operations should have a positive value given customer acq. costs, growth rates, and user satisfaction.
$42mn in FCF over last 5 years while revenue has grown from $18 to $80mn+ with aggregate CAPEX of $1mn
Company has the potential for $3+ in EBIT within 2-3 years with significant growth
Similar site traffic to Travelocity, Priceline and about 2/3 the size of industry leader Expedia
operating margins in the
20% of the float short
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