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Travelzoo
is scheduled to report fourth quarter 2008 results after the
market closes on Tuesday, February 3. Based on our analysis, we
are expecting TZOO to report disappointing results that fail to
meet Wall Street’s expectations.
Analyst
Expectations
We are
forecasting revenues of $16.7 million and EPS of ($.14). This
would represent a 13% decline in revenues from last year’s $19.1
million in the same period. The current analyst consensus calls
for revenues of $17.5 million and ($.12) EPS.
Travelzoo
has failed to meet Wall Street’s estimates for the past few
quarters and we see little likelihood for that to change now.
The company blamed poor Q3 results on weakening economy and the
economic headwinds have gotten much stronger in the fourth
quarter.
The
company’s aggressive expansion strategy into Europe and Asia
Pacific has yielded little results so far and has been
significant drain on resources. Based on the company’s current
cash burn rate, Travelzoo could even run out of cash by the end
of the year.
However,
we don’t think that scenario is very likely. Management has
announced their intentions to reduce costs and slow their
spending in Asia Pacific and Europe. We have recommended
reducing their international spending for some time as
meaningful results don’t seem likely in the near or even medium
term. Travelzoo has an incredibly simple business model with the
potential to yield high margins. It needs to spend 2009
rediscovering that business model.
Share
Performance
Travelzoo's shares are down 23% since the beginning of the year.
Last year, Travelzoo’s shares fell over 59% well eclipsing the
Nadaq’s 41% drop.
Valuation
Shares are
now trading at 0.8x consensus 2009 revenue estimates. The stock
has been in free fall since mid-December and will likely
continue falling after the earnings announcement. However, we
believe there will be support below $4 per share and would
recommend the shares if the price falls much below that point.
Recommendation:
Hold with a $4 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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