Travel Stocks to Bump: TravelZoo (TZOO)
TravelZoo (TZOO) is in many ways a polar opposite of Priceline — a small, hungry fish in a huge pond that has struggled to keep up with bigger rivals.
And while size isn’t everything when it comes to travel stocks, being the smallest kid on the block boosts the odds of getting badly roughed up by the market when headwinds arise, as they have during the past month. TZOO shares have lost 23% since April 2, and are down a total 33% over the past year.
Chalk up those recent losses to an earnings and revenue miss last month.
The keys to a turnaround for TZOO stock are supposed to be a reboot on its business model, the rollout of its new hotel booking platform and a heavier focus on mobile, but the headwinds might be too strong to overcome quickly. TravelZoo is ditching its convoluted voucher program in favor of the new, user-friendly hotel booking platform. To pay for the new initiative, TZOO cut its search and local deals spending — and revenue generated from those sources is down by 20%-25%.
We’ll know in the second half of the year whether the new booking platform generates strong revenue growth, but I don’t expect to see a quick turnaround. Mobile apps are not a differentiator, so TZOO will have to get creative to drive growth.
Travelzoo’s valuations (P/E 15.2, PEG 0.91) indicate at least fair if not undervaluing, but the jury is still out on whether its new platform can drive success in such a hotly competitive and commoditized travel market. So I’d bump TZOO for now.