TravelZoo Drops And Pops On Negative Cliffside Report

Shares of Travelzoo Inc. TZOO crashed on heavy volume Wednesday afternoon after Cliffside Research initiated coverage of the stock with a Sell rating and $6 price target.

According to Cliffside, Travelzoo operates its business with an "old, outdated, clunky and at times difficult to use" technology.

The company did manage to grow its business since becoming public in 1999, but its revenue growth run came to an end in 2013 and "now it's time to pay the piper."

"The company has largely been run profitably over several years but they've mainly relied on what worked in 1998 to do so, an advertising based vacation deals email newsletter," Cliffside argued. "While the competition has promoted and invested in product to improve functionality, ease of use and increased engagement on multiple platforms for the consumer, TZOO chose to mainly focus on their vacation deals email list."

Cliffside added it's hard to imagine the company's email list is "still the major driver" of revenue - even in 2016. In fact, the analysts believe the company has a negative return on investment (ROI) on new member acquisitions to its mailing list.

Meanwhile, a planned expansion into a hotel booking platform has taken over two years and has yet to be rolled out. Regardless, the move is being seen as an "act of desperation" given the revenue declines in every division across the company.

Also of particular interest to investors, Cliffside noted the company owes the IRS $31 million in taxes and penalties but this figure is more than its cash balance of just $27.6 million.

Bottom line, the analysts expect nothing else but further earnings decline in 2017 on increased cost and lower revenue. Over the longer-term, if the company cannot return to growth it is "essentially a zero."