Travelzoo is bullish about its Local Deals business, arguing that its offers are higher quality than competitors’ and that its customers are older and have more disposable income than the clientele of other deals’ providers.
But, is Travelzoo Local Deals’ growth trajectory disadvantaged because it has to expand the business while still making an overall profit?
Telling analysts and investors about Travelzoo’s fourth quarter of 2011 earnings today, CEO Chris Loughlin said it may take longer for Travelzoo to build its Local Deals business than some competitors because it has to do so while remaining profitable.
Loughlin didn’t name names, but he may have been thinking about recently public company¬†Groupon, which has seen soaring growth for its flash sales and vouchers, but had a net loss of $10.6 million in the third quarter of 2011.
Loughlin said it make take Travelzoo longer to capture share in the Local Deals market, but it will get there while remaining profitable as some competitors, with all their red ink, fall by the wayside.
For the fourth quarter, there were bright spots and causes for some investor concern in Travelzoo’s earnings.
Net income grew 70% year over year to $6.4 million on $35.2 million in revenue, which climbed 23%.
Glen Ceremony, CFO, explained that the fourth quarter was the company’s fastest growing in four years, and that there was record operating income, and historic profitability in Europe.
However, with investors looking for a growth story, especially in Local Deals, North America sequential revenue in all Travelzoo’s business segments from the third quarter to the fourth fell 8.9% to $25.6, and European sequential revenue dropped 9.3% to $9.7 million.
Meanwhile, Travelzoo started breaking out its businesses into Travel (Top 20, Newsflash and Getaway vouchers), Search (SuperSearch and Fly.com) and Local (Local Deals vouchers and entertainment vouchers and direct bookings) for the first time.
In North America, Travel revenue increased 9.2% to $14.3 million sequentially (slowed by airline competition and consolidation), Search revenue decreased 33.8% to $4.7 million as Travelzoo ratcheted down marketing spend because of seasonality, and Local revenue dropped 16.7% to $6.5 million because of “internal sales staff moves and sickness and seasonality…” according to the company.
Europe’s debt woes and the accompanying uncertain economic climate, along with seasonality, hurt the Travelzoo European Travel segment, where revenue decreased 11.4% to $6.2 million. Search revenue in Europe declined 31.3% from the third quarter to the fourth quarter (reduced marketing spend and economic uncertainty) and Travelzoo Local revenue increased 14.3% to $2.4 million.
By mid-afternoon EST, Travelzoo’s stock price was down more than 9% for the day.