TZOO - Travelzoo (TZOO) - Risk Reward Relationship Improves Despite Headwinds

Q1 in line with previously lowered expectations. Total company revenues were $14.3 million versus our $13.7 million estimate. The revenues benefited from moderating advertising trends. Adjusted EBITDA was roughly $600,000 versus our $15,000 estimate, benefiting from slightly better gross margins. Q2 outlook appears encouraging. Management guided Q2 revenues to a range of $16 million to $17 million, with expenses to be roughly $15.5 million. Given the improving revenues, the company is expected to swing toward earnings positive in the quarter.Stable gross margins? Management indicated that full year 2021 gross margins are expected to be relatively stable from that of Q1 at 78.9%, which we believe is lower than estimates on the Street. We anticipate that gross margins will improve given improving advertising revenue trends, but likely will be constrained due continued heavy Voucher sales. Encouragingly, management indicated that advertising demand and rates are rebounding, a hopeful sign that gross margins may have troughed.Cautiously, slightly more optimistic. Current revenue trends appear to be better than our recently lowered expectations, but appear to be below our original estimates. We are raising our full year 2021 revenue estimate from $65.0 million to $66.6 million. We are revising our full year adjusted EBITDA estimate from $7.8 million to $9.4 million. Our estimate includes a $3 million PPP loan forgiveness, which is factored into our third quarter expectations. Raise rating to Outperform, with a $18 price target. The TZOO shares are down roughly 20% from recent highs in March, creating a more favorable risk reward relationship. As such, we are raising our rating from Market Perform to Outperform with a 12 to 18 month price target of $18. Read More >>