TZOO - Travelzoo (TZOO) - Fast Road Toward Recovery

Q2 tops expected results. Total company revenues were $19.1 million versus our $16.1 million estimate. The revenues benefited from recovering advertising trends, particularly in North America. Adjusted EBITDA was roughly $4.9 million versus our $1.7 million estimate, benefiting from higher gross margins, (86.8% versus our 79.8% estimate). What gross margins imply? Management indicated that full year 2021 gross margins are expected to be relatively stable from that of Q2 at 86.8%. This is quite favorable, indicating that the company is returning toward a more "normalized" business model, one that is based on higher margin advertising, rather than lower margin Travel Voucher sales.Favorable revenue guidance. Management guided Q3 revenues to a range of $20 million to $21 million, with expenses to be roughly $16.5 million. This is another favorable sign given that Q3 is typically seasonally weaker than Q2 and indicates favorable momentum in the travel industry and advertising recovery. Raising expectations. We are raising our full year 2021 revenue estimate from $66.6 million to $76.6 million adjusted EBITDA estimate from $7.8 million to $17.6 million. Flowing through the favorable margin assumptions into 2022 and 2023, we are raising our revenue and adj. EBITDA expectations in those years as well. Raising price target. Near current levels, the TZOO shares trade at 8.7 times Enterprise Value to our upwardly revised 2022 adj. EBITDA estimate, or near the low end of the company's 5 year and 20 year trading averages. We believe that the valuation is low considering the early stage travel and advertising industries recovery and the shares are rated Outperform. Read More >>