Market Overview

Is Travelzoo the Same Crappy Company?

Travelzoo (NASDAQ: TZOO) is a small internet media company that gives its user-base travel and entertainment deals daily. The company has a $522 million market-cap and is essentially a play off its larger competitors like Priceline (NASDAQ: PCLN) and Expedia (NASDAQ: EXPE). Travelzoo has been touted by many small-cap traders as a company whose stock is just waiting break to the upside, promising 100% gains. So far, that has not happened, at least on a consistent basis.

Travelzoo's price action over 2011 has been extremely volatile. From January to mid-March, Travelzoo was trading between $40 and $50. From the third week in March to the third week in April, Travelzoo appreciated to $100, and many investors reaped the benefits from the small-cap company. However, it appears that many of them felt adequately rewarded at about $100 and pulled out, as TZOO dropped down to $60 until about June. The stock attempted to break back up above $90, but failed massively in the middle of July. Since then, the stock has been in a consistent downtrend, and is currently around the $30 price level.

Considering the violent price movements over the last year, some investors are wondering if it is still a good investment. After all, it is at its cheapest levels in an extremely long time. Over the years, many stocks have experienced similar movements and have been unable to recover from consistent downward pressure. Does Travelzoo have anything to merit another rally?

Over the last few quarters, Travelzoo's net income figure has fluctuated significantly. Its revenues have been steadily increasing while cost of goods sold stay consistent, so its gross margin has increased accordingly. One aspect that has been very volatile is sales, general, and administrative expenses. This expense has made income extremely volatile over the last three quarters.

While its most recent net income number was positive, its cash inflows have been less than stellar over the last few quarters. It has primarily been affected by negative net income numbers and wild fluctuations in working capital. For example, in Q1 2011, accrued liabilities increased cash by $23 million, but only by $7 million in Q2. Working capital fluctuations, especially increased liabilities, are never good if they repeatedly occur. Over the last three quarters, cash inflows have decreased from $21 million to $11 million and to -$1 million.

Travelzoo's balance sheet contracted in the last quarter, having a smaller cash position but also less property, plant, and equipment. Liabilities also decreased, although payables increased in the last quarter. Retained earnings, however, increased, due to an increase in net income.

Travelzoo has also been the target of an uncertain buyout attempt. A company called ChaPaVe Partners claimed in early September to bid for Travelzoo, but investors across the board were confused about its legitimacy. ChaPaVe Partners gave no contact information initially, and eventually gave contact of a lawyer. The firm's website is also not convincing that the company is capable of doing the due diligence and actually purchasing a company for millions of dollars.

Travelzoo is one of those stocks that many people are excited about. Simply, its financials do not seem to support the growth story that many people are waiting to unfold. Only time will tell if Travelzoo successfully turns around and somehow makes its business model unique to accrue more clients and ultimately expand. Much like Groupon, Travelzoo operates in an extremely saturated market and will most likely have trouble differentiating itself from its competitors and ultimately adding value to its shareholders in.

Travelzoo is currently trading at $31.91 and is down about 23.55% for the year.

Posted-In: News Short Ideas Small Cap Analysis M&A Events Markets Movers Tech Best of Benzinga

 

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