Travelzoo (NASDAQ: TZOO) is a popular online destination for travel enthusiasts looking for attractive deals from over 5,000 hotels, airlines, and restaurants in Europe and the US. The company employs an in-house deal expert team to offer customers curated travel plans at the best pricing based on their requirements. TZOO boasts multiple revenue streams and strives to expand its 30 million global user base through acquisitions like Jack’s Flight Club and entry into the Metaverse with the Travel META rollout for virtual travelers. The asset-light company has made a remarkable recovery since losing 50% of its revenues in 2020 to record a consolidated operating profit of $5.6 million for Q1 2024. Below we summarized a bullish April thesis published by Jamal on Value Investors Club.
A busy airport terminal of travelers eager to utilize the company’s services.
TZOO Global CEO Holger Bartel continues to focus on expanding outreach and strengthening existing partnerships with travel suppliers to get better deals for members, especially when travel prices are trending higher. Bartel earned a PhD in Economics and took charge of the company in 2016. His approach to offering value experiences at lower costs works as total users increased by 500,000 year-over-year (YoY) in Q1. The company boasts a market cap of $120 million and gross margins of 87%, supported by the secular rebound in the tourism industry as worldwide arrivals are on track to surpass pre-pandemic levels this year. TZOO shares climbed over 11% in the past year to close at $8.71 on July 24, with a trailing twelve-month price-to-earnings (P/E) ratio of 11.46. The company’s Q1 revenues increased 2% YoY to 22 million with $16.9 million in cash and cash equivalents. Meanwhile, merchant payables owed to partners for future voucher payments markedly decreased in alignment with the company’s earlier forecast that payables would stabilize. In that case, normalized free cash flow could reach $22 million, implying a 19% FCF/EV yield, bumping the possibility of more cash being available for investors in the future.
TZOO’s revenues from the travel segment are mainly ad fees and commissions from travel firms and hotel bookings, while the local segment comprises offers from restaurants and hotels. While revenues from local businesses fell to $4.2 million last year from $5.4 million in 2021 due to a slump in the North American region, travel segment income is surging, recording a growth of 13.3% in 2022 and 17.7% last year in the area. Revenues from its European business also jumped by 12.3% in 2022 and a whopping 23.5% in 2023. TZOO’s acquisition of Jack’s Flight Club at the beginning of this decade resulted in a compounded annual growth rate of 5.7% for the company ever since. Despite concerns about the shrinking local business and how the newly announced membership fees would affect user sign-ups, TZOO’s strong travel segment, which makes up 90% of its revenue, and several tailwinds for the industry position it for future growth. For Q2, the company anticipates continued YoY growth and higher profitability.
TZOO is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 8 hedge fund portfolios held TZOO at the end of the first quarter which was 9 in the previous quarter. While we acknowledge the potential of TZOO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as TZOO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.
Disclosure: None. This article is originally published at Insider Monkey.
Hedge Fund Resource Center