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Travelzoo
is scheduled to report their fiscal third quarter 2008 results
after the market closes on Monday, October 27. Based on our
analysis, we at
eChristianInvesting are expecting TZOO to report
disappointing results that miss Wall Street’s consensus
expectations.
Analyst
Expectations
We are
forecasting revenues of $21.6 million and EPS of ($.11). This
would represent a 9% increase in revenues from last year’s $19.9
million in the same period. The current analyst consensus calls
for revenues of $21.9 million and ($.09) EPS. The company has
provided no guidance.
Travelzoo
has managed to transform itself from a profitable, Wall Street
darling to a money-losing business that shows little sign of
improvement. The company’s decision to expand internationally
has proved to be very costly. Last quarter, Travelzoo lost $2
million in Europe and over $3 million in Asia Pacific. These
investments have produced relatively little in the way of
revenues – only $90,000 in Asia Pacific – and are expected to
continue producing losses for the next two to three years.
In
addition, we also believe that Travelzoo is beginning to feel
the effects of a weakening economic environment that is
negatively impacting consumer purchases in areas like travel.
While Travelzoo may not be as affected as other online travel
companies (Priceline, Expedia and Orbitz), we believe that
top-line growth could prove very challenging in the quarters
ahead.
Share
Performance
To date,
Travelzoo’s shares are down 49%. The company has continued to
under-perform the broader market indexes again this year after
posting a 54% decline last year. To date, the Nasdaq has dropped
40% after a 10% gain in 2007.
Valuation
Shares are
now trading at 26x consensus 2009 EPS estimates. This is above
the relative valuations of their peer group. In addition, we
believe that those estimates will be revised downward. Barring a
breakthrough in the company’s international expansion efforts or
a decision to abandon the international investments, we cannot
recommend this stock.
Recommendation:
Sell with a $5 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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