Travelzoo Q3 2024 Earnings Report

Travelzoo EPS Results

• Actual EPS: $0.26
• Consensus EPS: $0.20
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $0.16

Travelzoo Revenue Results

• Actual Revenue: $20.10 million
• Expected Revenue: $21.15 million
• Beat/Miss: Missed by -$1.05 million
• YoY Revenue Growth: N/A

Travelzoo Announcement Details

• Quarter: Q3 2024
• Date: 10/23/2024
• Time: Before Market Opens
• Conference Call Date: Wednesday, October 23, 2024
• Conference Call Time: 11:00AM ET

Travelzoo (NASDAQ:TZOO) (NASDAQ: TZOO) is a global internet media company specializing in publishing curated travel, entertainment and local deals to a subscriber base of millions. Through its website, mobile applications and weekly email newsletters, Travelzoo partners with airlines, hotels, cruise lines, tour operators and local merchants to promote time-sensitive offers at discounted rates. The company generates revenue primarily from media commissions, advertising arrangements and marketing services provided to its hotel and resort partners.

Founded in 1998, Travelzoo went public on the NASDAQ in 2003 under the ticker symbol TZOO. Over the years it has evolved from a small startup into an established online publisher, leveraging proprietary deal-aggregation technology to identify value-priced offerings. Travelzoo’s flagship Top 20 list highlights the week’s most compelling travel opportunities, while specialized newsletters and mobile alerts ensure subscribers receive relevant deals for their preferred destinations and interests.

Headquartered in New York City, Travelzoo maintains regional offices across North America, Europe and Asia to support partnerships and negotiate exclusive offers. The company’s digital platform is built around audience segmentation and data analytics, enabling targeted promotions that drive higher conversion rates for its partners. Travelzoo continues to expand its geographic reach by forging relationships with tourism boards, activity providers and online travel agencies in key markets worldwide.

Under the leadership of President and CEO Chris Loughlin, Travelzoo focuses on enhancing its user experience through mobile innovation and personalized deal delivery. The management team emphasizes operational efficiency, strategic alliances and technological enhancements to sustain growth in an increasingly competitive online travel sector. With a track record of connecting consumers to verified, quality offers, Travelzoo remains a prominent player in digital deal publishing.

Travelzoo Q3 2024 Earnings Call Transcript

Key Takeaways

• Travelzoo’s consolidated Q3 revenue was $20.1M, down 2% year-over-year and slightly below expectations.
• Operating profit rose 30% year-over-year to $4M (20% of revenue), with non-GAAP margin at 25% and European margins improving to 17%.
• Membership fee revenue remains small at $1.4M in Q3, but management expects substantial revenue and profit growth from legacy member conversions starting in 2025.
• Operating cash flow of $5.3M, a cash position of $12.1M, and 552,679 shares repurchased underscore strong financial health.
• For Q4, Travelzoo forecasts year-over-year revenue and profitability growth (albeit at a slower pace), and anticipates significant 2025 growth driven by membership fees.

Presentation

[Operator]

Good morning, and welcome to the Travelzoo third quarter two thousand and twenty-four earnings call. Today's conference is being recorded. Currently, all callers have been placed in a listen-only mode, and following the management's prepared remarks, the call will be open for your questions. If you would like to ask a question at that time, please press star and one on your telephone keypad. If you would like to remove yourself from the question queue, press star and two. At any time, if you do need assistance, please press star and zero. The company would like to remind you that all statements made during the conference call and presented in the slides that are not statements of historical facts, constitute forward-looking statements and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of nineteen ninety-five.

[Operator]

Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Forms 10-K and 10-Q and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to the company's website for important information, including the company's earnings press release issued earlier today. An archived recording of the conference call will be made available on the company's investor relations website at travelzoo.com/ir.

[Operator]

Now, it is my pleasure to turn the call over to Travelzoo's Global CEO, Holger Bartel, its General Counsel and Head of Global Functions and CEO of Jack's Flight Club, Christina Ciocca, and its Finance Controller for North America, Jeff Hoffman. Jeff, we'll start with an overview.

[Jeff Hoffman, Finance Controller for North America at Travelzoo]

Thank you, operator, and welcome to those of you joining us today. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our investor relations site at travelzoo.com/ir. Let's begin with slide number 4. Travelzoo's consolidated Q3 revenue was $20.1 million, down 2% from the prior year. In constant currencies, revenue was $20 million. This was a little below our expectations. Operating income, which we as management call operating profit, increased 30% year over year. Q3 operating profit was $4 million or 20% of revenue, up from $3.1 million in the prior year. Slide 5 shows that higher profits came particularly from our Europe segment. On slide 6, we break down our categories of revenue, advertising, membership fees, and other. Advertising revenue was $18.7 million for Q3 2024.

[Jeff Hoffman, Finance Controller for North America at Travelzoo]

Revenue for membership fees was $1.4 million. Membership fee revenue is still small. We expect to substantially drive revenue and profit growth in 2025 for the following reasons. At the beginning of 2024, we introduced a membership fee. Those who were already members at that time are exempt from the fee during 2024, but have to pay in 2025. We call this group legacy members, and they represent over 95% of current members. Slide seven shows an example of membership fee revenue recognition. Revenue from membership fees is recognized ratably over the period of the subscription. Member acquisition costs, however, are fully recorded and recognized as expenses immediately. On slide eight, you can see that our GAAP operating income remained high at 20%, which is typically our slowest quarter of the year.

[Jeff Hoffman, Finance Controller for North America at Travelzoo]

Slide 9 shows that in North America, the GAAP operating margin remained high at 25% for Q3 2024. In Europe, the margin increased to 17%. On slide 10, we provide information on non-GAAP operating profit, as we believe it better explains how Travelzoo's management evaluates financial performance. Q3 2024 non-GAAP operating profit was $4.9 million. That's 25% of revenue, compared to non-GAAP operating profit of $3.9 million in the prior period year. Slide 11 provides information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to slide 12. With operating cash flow of $5.3 million, we maintained a solid cash position even after purchasing 552,679 shares of the company's outstanding common stock during the quarter.

[Jeff Hoffman, Finance Controller for North America at Travelzoo]

As of September thirtieth, 2024, consolidated cash, cash equivalents and restricted cash was $12.1 million. Going forward, we expect our cash balance to increase again as we collect membership fees at the beginning of the subscription periods. Slide 13 shows how revenues compare to operating expenses. Most of the company's operating expenses, except for marketing, are relatively fixed in the short to mid-term. We believe we can keep our fixed costs relatively low in the foreseeable future. Higher revenues would thus increase operating margins. Looking ahead, for Q4 2024, we expect growth in revenue year over year, albeit at a smaller pace than in 2023. However, there could be unexpected fluctuations. We also expect for Q4 2024, higher profitability year over year and quarter over quarter.

[Jeff Hoffman, Finance Controller for North America at Travelzoo]

For 2025, we expect substantial growth in revenue as a result of additional revenue from membership fees. I'll now turn the discussion over to Holger.

[Holger Bartel, CEO at Travelzoo]

... Thank you, Jeff. We will continue to leverage Travelzoo's global reach, trusted brands, and our strong relationships with top travel suppliers to negotiate more club offers for our members. Travelzoo members are affluent, active, and open to new experiences. We inspire members to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do. Slide fourteen provides more information about Travelzoo members. 91% say that they are open to new destinations and travel ideas. We are the club for travel enthusiasts. On Slide sixteen, we provide an overview of our management focus.

[Holger Bartel, CEO at Travelzoo]

We are working to convert a large number of legacy members into paying members from January first, two thousand and twenty-five on, add new benefits to make paid membership even more valuable, retain and grow our profitable advertising business from the popular Top 20 products, utilize higher operating margins to increase EPS, grow Jack's Flight Club's profitable subscription revenue, and develop Travelzoo Meta with discipline. I'm now handing over to Christina, who will speak about Jack's Flight Club and Travelzoo Meta.

[Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club at Travelzoo]

Thank you, Holger. In Q3, Jack's Flight Club had year-over-year increases in revenue of 11% to $1.2 million, and in premium subscribers of 14%. Earlier in the year, as previously announced, we implemented a price increase for new subscribers only, expanded into Canada, and improved our marketing strategy. Because of the revenue deferral for subscriptions, we're now starting to see the payoff from these initiatives, including strong CPAs and marketing efficiencies, and we expect this trend to continue into Q4 and 2025. Our focus continues to be on investing in growth while maintaining profitability. Now, I'd like to speak about Travelzoo Meta. We are working on the production of the first metaverse travel experiences. They will be browser-enabled. As stated in previous earnings calls, we are conscious of developing Travelzoo Meta in a financially disciplined way. We will provide additional updates in due time.

[Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club at Travelzoo]

I'm now handing over to the operator for questions for Holger, Jeff, and me.

[Operator]

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the question queue by pressing star and two. We do ask that you limit yourself to one question and one follow-up. We will take our first question from Theodore O'Neill with Litchfield Hills Research. Please go ahead. Your line is open.

[Theodore O'Neill, Analyst at Litchfield Hills Research]

Okay, thanks very much. I have two questions for you. First one for Holger. Last quarter, you talked about travelers becoming more cost-conscious and price increases for flights and rooms would moderate. Is that still what you're seeing out there? Are you seeing any more or less of that? And my second question is on the operating margin between North America and Europe. I would have expected the European margin to have been lower, just relative to economic growth there. I would expect the North American to be about where it is, but I was just a little surprised about the strength in Europe, and I was wondering if you could give us some details on that. Thank you.

[Holger Bartel, CEO at Travelzoo]

Hi, Theo. So, on your first question, yes, we are hearing from hotels and airlines that they are seeing generally less demand, better prices, more deals. You might have seen the big brands like Marriott, InterContinental, launching big sales on their hotels for fall, so that trend continues or even accelerates. And yes, consumers are looking for value. We also see that they are looking for less crowded destinations. On one hand, because they want to go to places that are not overcrowded, and on the other hand, places that are less popular are destinations that offer generally better value. And that's where we are actually strong by motivating our members to go to places where they haven't been or that they didn't think about or they didn't even know existed. And on the second question, yes, we're happy about Europe.

[Holger Bartel, CEO at Travelzoo]

Our profit margin there is increasing and getting closer to the one of North America. We just operated very well and efficiently in Europe this quarter, and we expect this trend to continue.

[Theodore O'Neill, Analyst at Litchfield Hills Research]

Thank you very much.

[Operator]

We'll take our next question from Michael Kupinski with Noble Capital Markets. Please go ahead. Your line is open.

[Michael Kupinski, Analyst at NOBLE Capital Markets]

Thank you, and good day, everyone. Just a couple of quick questions here, regarding the membership. Can you give us an idea of what you're anticipating in terms of 2025, the mix might be between advertising and membership fees, particularly as you roll out your membership fees? And then, in terms of... You indicated that Q4 should show some revenue growth. Are you seeing improving trends in Americas, and what are you seeing that in terms of Europe? And then are there any membership fees that are starting to filter into Q4 that might be accounting for the improving trends there?

[Michael Kupinski, Analyst at NOBLE Capital Markets]

And then the final part of that is, in terms of the membership fee rollout, I know that you're testing various models and lengths and terms in pricing and so forth. I was just wondering, have you made any changes to your initial thoughts in terms of the membership fees, going forward, and if so, what that might be?

[Holger Bartel, CEO at Travelzoo]

... To repeat it again, we get the membership fee revenue to increase quite substantially next year. With regards to Q4, we see membership fee revenue increasing more in 2025, just because the existing members are still exempt. And you also asked about... What was the next question again? About membership fees in Q4?

[Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club at Travelzoo]

Yeah. If you're starting to see an increase.

[Holger Bartel, CEO at Travelzoo]

As you see in Q3, US was really the only market where revenues were down against our expectations. So, wasn't a big deal for us. We just had some advertisers move their spend into the future, and then we had one who was supposed to launch in Q3. Their website wasn't ready in Q4, so in Q4 we expect things to normalize. But as I said, no, we don't expect yet a substantial growth in membership fees in Q4, just because of the strategy that we have pursued, that we are giving the existing members an exemption in 2024.

[Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club at Travelzoo]

Holger, I missed the first part of my question. It was a little jumbled. I think that was related to the revenue mix between advertising and membership fees in 2025. Could you just repeat that for me?

[Holger Bartel, CEO at Travelzoo]

I said, we don't make any forecasts yet with regards to how many members, how many paying members we expect in 2025, so we also don't make any forecasts yet for how much membership revenue we expect to generate in that year.

[Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club at Travelzoo]

I gotcha. Okay, thank you.

[Operator]

We will take our next question from Steve Silver with Argus Research. Please go ahead. Your line is open.

[Steve Silver, Analyst at Argus Research]

Thank you, operator, and thanks for taking the questions. Holger, in the management focus slide, you talked about adding new benefits to the paid membership. I'm just curious if there's any updated thinking in terms of what that might entail, even just in terms of potentially bundling the paid membership and Travelzoo Meta memberships down the line, once the Meta is ready for a broad rollout. I'm curious to know what some of those details might be about the paid membership benefits.

[Steve Silver, Analyst at Argus Research]

And then, as a follow-up, would be, given the strong cash flows that the company's announced, especially in Q3, really, what are the uses of cash that you're thinking about moving forward, whether it's just the continued share repurchases and then marketing expenses for customer acquisition on the paid membership side? Thanks.

[Holger Bartel, CEO at Travelzoo]

So Steve, on the member benefits, we have four in the works right now, and you, and our members, if you are also a member, will hear about them in the next few weeks. They mostly have to do with traveling better, because we want, if you are a Travelzoo member, and you travel a lot because you are traveling enthusiast, we would like you to just have a better travel experience. So you'll hear more about that. With regards to the cash flow, you saw we just announced another share repurchase program, so we will continue to repurchase shares because we feel it's a good investment right now. The stock price is still attractive.

[Holger Bartel, CEO at Travelzoo]

Also in 2025, when we expect even higher cash flows, we believe we can invest more in marketing and growing the member base, in addition to also improving earnings per share.

[Steve Silver, Analyst at Argus Research]

Okay, great. Thanks for the color.

[Operator]

We will take our next question from Ed Woo with Ascendiant Capital. Please go ahead. Your line is open.

[Ed Woo, Analyst at Ascendiant Capital]

Yeah, thanks for taking my question. Congratulations on the growth. Jack's Flight Club had pretty good year-over-year growth. Is it in all markets now? I know you said that you just expanded recently in Canada. And what do you think? Do you think Jack's Flight Club could encompass a majority of Travelzoo members?

[Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club at Travelzoo]

Sure, I can answer that. So for right now, we're in the U.K., Canada, the U.S., and certain countries throughout Europe. We are looking into other countries, particularly in Europe, where we can expand. We're also considering whether we launch with alternative language editions beyond just English. So that's in our consideration set as we start our strategic planning for 2025, and then in terms of conversion of Travelzoo members, that was always an intention when we acquired this business. We have seen that Travelzoo members have interest in Jack's Flight Club. Now that Travelzoo has become a paid membership, we are reconsidering what that will look like and ways in which we can kind of offer both services to Travelzoo members.

[Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club at Travelzoo]

So that's still a bit of a TBD, but it is in progress in terms of discussions.

[Ed Woo, Analyst at Ascendiant Capital]

What is the membership fee for Jack's Flight Club in the U.S. versus in Europe? Are they pretty comparable?

[Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club at Travelzoo]

...Yeah, it's comparable. It's $60 in the U.S., and in Europe it is, well, depends, depending on the currency, but, they're basically comparable for conversion.

[Ed Woo, Analyst at Ascendiant Capital]

Great. Well, thanks for answering my questions, and I wish you guys good luck. Thank you.

[Operator]

We'll take our next question from Patrick Sholl with Barrington Research. Please go ahead. Your line is open.

[Patrick Sholl, Analyst at Barrington Research]

Hi, thank you. I just had a follow-up question on you talked about ensuring that, you know, people that travel with Travelzoo a lot have a better travel experience. I'm just kind of wondering, with the shift to the subscription-oriented service, if there's any, like, areas that you felt needed additional investment on either customer service or sort of like your deal research, anything in those areas? and I had a couple other follow-ups.

[Holger Bartel, CEO at Travelzoo]

Over the last couple of weeks, I had the pleasure of participating in many meetings with our existing members. We organized lunches in the UK, in the US, in Canada, and it provided a good opportunity to learn even more from our members. And we are very excited about two thousand and twenty-five. They are also because the most important thing that our members are getting from Travelzoo are the special prices on the exclusive experiences that we negotiate for them. When we explain to them why a membership fee, which makes Travelzoo what you call a closed user group, why this enables us to deliver even better offers to our members, then they really understand why we are going in this direction.

[Holger Bartel, CEO at Travelzoo]

They like it because ultimately, the membership fee, which, you know, it's a pretty nominal amount, $40 in the U.S., GBP 30 in the U.K. It's relatively insignificant to the hundreds or sometimes thousands of dollars that you can save with a Travelzoo deal. So once they understand it and see that it allows us to escape things like price parity for hotels and so forth and bring them more and better offers, they get very excited. That's why we feel very positive about this move, and we feel very good about 2025. Now, Pat, you said you had a couple of more questions?

[Patrick Sholl, Analyst at Barrington Research]

Yeah. So, I mean, maybe this is sort of asking something that Mike had another way, but,

[Holger Bartel, CEO at Travelzoo]

Mm-hmm.

[Patrick Sholl, Analyst at Barrington Research]

With your advertisers, I guess, what are their sort of, their expectations on, the reach of your, of your membership base with the-- when you transition to, the legacy members onto the paid product?

[Holger Bartel, CEO at Travelzoo]

So we decided that for our advertisers, we will maintain their reach in two thousand and twenty-five. Even if you don't convert to a member, to a paying member in two thousand and twenty-five, and you have been a Travelzoo member for a long time, you're still able to see the offers. You're still able to see top trends. You will see it a bit later than the others, and there's lots of other benefits that you are missing out on. You cannot buy the offers that we negotiate exclusively, but for our advertisers, we have come up with a plan that maintains the reach for them. And so with this strategy, we also anticipate to maintain or even grow our advertising revenues next year. And lastly, think of a member who is paying a membership fee.

[Holger Bartel, CEO at Travelzoo]

That member is now even more looking forward to the offers that they are receiving. They are more engaged to pay for something that previously was free, so now you really want to take advantage, and we see that members already in 2024 who paid a membership fee because they joined in 2024, that they are more active and more engaged than those that haven't paid a membership fee previously.

[Patrick Sholl, Analyst at Barrington Research]

Okay. Thank you.

[Operator]

And this does conclude the Q&A portion for today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks.

[Holger Bartel, CEO at Travelzoo]

Yes, dear investors, thank you so much again for your time and support, and we look forward to speaking with you again next quarter. Have a great day.

[Operator]

This concludes today's Travelzoo third quarter 2024 earnings call and webcast. You may disconnect your lines at this time, and have a wonderful day.

Participants

Executives

• Christina Ciocca, General Counsel and Head of Global Functions and CEO of Jack's Flight Club
• Jeff Hoffman, Finance Controller for North America
• Holger Bartel, CEO

Analysts

• Steve Silver, Analyst at Argus Research
• Ed Woo, Analyst at Ascendiant Capital
• Patrick Sholl, Analyst at Barrington Research
• Theodore O'Neill, Analyst at Litchfield Hills Research
• Michael Kupinski, Analyst at NOBLE Capital Markets