TZOO - Travelzoo Inc. (TZOO) - Initiating Coverage; A Compelling Play On The Travel Industry Recovery
A different kind of travel company. Travelzoo is a media company wedded to the travel industry. We anticipate a long tail travel advertising recovery, which should take shape later this year. Unlike business travel, which may be forever changed by Covid, Travelzoo is a compelling advertising recovery play on leisure travel. We believe that there is pent up demand for leisure travel given a strong favorable responses to travel vouchers with price promotions and no change fees. Financially capable of weathering the crisis. As of June 30, the company had $25.5 million in cash and virtually no debt. The company benefited from an influx of cash from the sale of travel vouchers. We believe that the company will swing toward free cash flow in the fourth quarter and build upon its strong financial position in 2021 and 2022.Improving margins. The company took aggressive action to lower infrastructure and staffing levels in response to the Covid pandemic. Given a lower corporate footprint and efficiencies in content/publishing software, we believe margins will be substantially improved above pre-Covid levels. We estimate operating cash flow margins of 12.2% in 2021 and 12.7% in 2022, up from 10.6% in 2019.Compelling growth component. The recent 60% acquisition of Jack's Flight Club, a subscription based flight business, offers compelling growth opportunities through new products, such as travel package offerings, premium subscription services, and expansion into new markets, such as the United States. Rating Outperform, with a $11.50 price target. Near current levels, the TZOO shares trade at 7.4 times Enterprise Value to depressed 2021 cash flow levels, at the low end of its 5 year average trading range of 6.3 to 16.7 times. In addition to trading at multiples below the company's anticipated cash flow growth rate, the shares trade below both travel-related and media-related peer groups. Our $11.50 price target anticipates a multiple at the mid-point of its most recent average trading range.Read More >>