TravelZoo Earnings Preview: Fourth Quarter 2008

Travel Zoo [[TZOO]] is scheduled to report fourth quarter 2008 results after the market closes on Tuesday, February 3. Based on our analysis, we at EarningsPreview.com 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, Travel Zoo 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. Travel Zoo has an incredibly simple business model with the potential to yield high margins. It needs to spend 2009 rediscovering that business model.

 

Share Performance

Travel Zoo’s shares are down 23% since the beginning of the year. Last year, Travel Zoo’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.

 

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