2 To Buy, 1 To Avoid in Internet Travel
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Everyone travels once in a while. Some people book their flights directly with airlines like Southwest; others use the variety of travel sites that are at their disposal to find the perfect package. Here’s my collection of two travel sites to buy, and one to avoid.
Travelzoo (NASDAQ: TZOO)
Travelzoo is the smallest of the three travel companies that we will be looking over in this article, but I believe it’s the one with the most potential.
As outlined in its most recent annual report (PDF), the company sees an estimated 13.2 million unique users on its websites per month. It also has a couple of newsletters that reach more than 20 million people.
All of these users equated to $151 million in revenues for Travelzoo in 2012. 2011 revenues came in at $148 million, and 2010 revenues were $112 million. Those numbers represent a 32% growth from 2010 through 2011, and a 2% growth rate from 2011 through 2012.
The company has outlined a growth plan in its 10-K. Over the next few years, Travelzoo aims to build its brand awareness by sponsoring conferences and other events. Travelzoo also plans to bring its business model to other markets such as Germany, France and Spain.
It’s the expansion into foreign markets that most intrigues me about Travelzoo. I believe it'll increase its subscriber counts across the world and will continue to sell great package deals. With a little emphasis on Fly.com, one of the company’s brands, it could easily become a household name as well.
Sites like Fly.com and SuperSearch, yet another Travelzoo brand, earn referral fees upon customers making a booking. Currently, these sites make around $170 per 1000 searches, and there were more than 60 million searches made in 2012.
Expedia (NASDAQ: EXPE)
Expedia assists its customers with hotels, flights, car rentals and more to help ensure the perfect vacation. With a market cap of $8.5 billion, it could be a snug fit in your portfolio.
Everything at Expedia is growing. The company, at the close of the last quarter, saw year-over-year gains of 19% on gross bookings and a 24% growth in revenues over that same time period. If you take the entire year into account, those numbers are 16% and 17% respectively. (10-Q PDF)
Expedia has a truly global presence. The company has agreements with many of the world’s largest airlines, and recently entered into partnerships with British Airways and South African Airways.
Another Expedia brand, Hotwire.com, is also making moves in the industry. Hotwire managed to open up localized versions of its website in Germany and Hong Kong.
Expedia has over $1.25 billion in cash on its balance sheet, meaning that almost 15% of their market capitalization is in cash. That’s not too bad of a deal.
Kayak (NASDAQ: KYAK)
Kayak is a stock to avoid, at least for now. This company hasn’t been public long -- seriously, I haven’t even see a 10-K yet -- and it's trading at a very high P/E multiple of 43.5, versus the industry's 19.9. Could it eventually be worth it? Let's take a closer look.
If we look at revenues over the last few fiscal years, each ended on Sept. 30, we’ll see that they shot up from $61 million in 2011 to $78 million in 2012. That is a solid 28% jump.
Like Travelzoo, Kayak makes most of its money from advertising hotels, airlines and car rental facilities on their websites. Kayak is making a big push to the mobile space in order to ensure that it's collecting a majority of mobile travel bookings. The company’s 10-Q (PDF) estimates that it has just more than a 15% share of all mobile travel queries coming through their apps.
Another interesting figure from the 10-Q is that Kayak is making approximately $350 per 1,000 hotel queries on their website. Just imagine how much money it'd be making if it could get those queries up.
I’m avoiding Kayak for its overpricing. If the P/E ratio wasn’t as high as it was, then I’d probably look into buying this company, simply for its mobile potential.
At this point, I would buy both Expedia and Travelzoo. If I had to choose just one, I'd go with Travelzoo.
It's a very small company playing in a world full of big fish. If you head over to its websites, you’ll see that they have local deals, travel deals and more, all on one website. The company also holds the valuable name, Fly.com, which I believe will continue to garner traffic as people look for flights.
Of course, the online travel industry is very cutthroat, and you’ll want to make sure that you know what you’re getting into. Make sure you go through the SEC filings linked in this article before you jet off toward any investment in this sector.
Ash Anderson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!