Posted on by Phil

Quick Thoughts On Travel Zoo (TZOO)

If I’m not mistaken, in a few hours Travel Zoo (TZOO) will announce earnings for Q4.  This stock has been hyped due to it’s expansion into daily deals and has gone up 300% of so since the summer.  And, as the Yipit guys pointed out, the deals segment is now valued at around $400 mm.

As a disclaimer, I own a small amount of Travel Zoo which I bought a few months back.

Quickly, many of these daily deal sites have been valued at around 3x the run rate net revenues (the amount of cash that actually goes to the company in a month – i.e Groupon charges you $50 for a coupon, but only takes 40% of that for themselves with the rest going to the merchant.  That 40% is the net revenue).  You can check out the Spreets/Yahoo acquisition as a comp.  The numbers haven’t all been posted, but you can do some easy calculations to back into a run rate net revenues number and figure that they were bought for around 3x.  By the way, run rate here is simply taking last month’s revenues and multiplying by 12 (annualizing the number).

So, do we think that TZOO is doing 450 mm / 3 = 150 mm in run rate net revenues?  This would imply 150/12/.4 = 31.25 mm in monthly revenues for January.  The math is net revenues/months in a year/the amount of net revenue that TZOO collects as cash to them.  This would seem like a lot, especially considering they just launched 6 months ago.  However, the company also has a 20 mm member email list, access to capital markets (which potentially means they should trade at a premium to 3x gross profit due to better liquidity than a smaller, private company), and a proven management team.

All that aside, I’m more interested in knowing what the market thinks will happen, which will be evident by the change in the stock after the data is actually released.  What if they are doing 10 mm in monthly revenues and that is enough to see the stock rise 15%?  Does that mean people are just being irrational?  Time will tell…

Note: As stated above, I have a small amount of personal money invested in TZOO stock at the time of writing this post.

33 Replies to “Quick Thoughts On Travel Zoo (TZOO)”

    1. Thanks Aki – luckily I was able to follow my own valuation rationale and sell quickly when earnings were announced….

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