TZOO - Travelzoo (TZOO) - Expecting A Slow Start Toward Recovery

Refining estimates. The company recently released its annual 10K and this report refines our estimates for 2021 and 2022 and posts our look into 2023. While the Covid vaccines provide promise of a return toward "normalcy", we believe that the travel recovery is off to a sluggish start. We are lowering our full year 2021 and 2022 revenue and adj. EBITDA estimates. Where should gross margins go? Gross margins in Q4 decreased from 78.8% in Q3 to 77.6% in Q4. The gross margins were significantly down from 88.1% in Q4 2019. Our model assumes a gradual improvement in gross margins to 79.2% in 2021 to 81.0% in 2022 to 81.5% in 2023. How investors should look at the cash? The company had a large cash position, $63.06 million as of December 31, 2020, due to popularity travel vouchers. While the company collected the cash upon the sale of the voucher, it will pay the service providers only when the vouchers are redeemed. We expect that the company's cash position may increase in the second quarter, but then begin to decrease in subsequent quarters, as vouchers are redeemed and the company returns to its traditional advertising based model.Refining our valuation metric. Given the recent burgeoning cash position from voucher sales and the prospect that the cash will begin to decrease in future quarters, we are no longer using cash as a part of our Enterprise Value calculation. This is simply due to the fact that the cash position is expected to decrease as vouchers are redeemed. Shares rated Market Perform. Near current levels, the TZOO shares trade at 26.6 times Enterprise Value to our downwardly revised 2022 cash flow estimate. Our Enterprise Valuation includes fully diluted shares outstanding of 14.8 million and does not subtract the sizable cash position, mainly because this cash position is expected to decrease over time.Read More >>