TZOO - Sector: Services---Industry: Internet Information Providers

[yukiii]

Wedbush Morgan
Travelzoo (TZOO)
Q1 Earnings Below Our Estimate on Higher Investment
Spending

52-Week Range $19.57 - $52.99 Long-Term Debt  $0
Shares Outstanding 17 million Debt/Capital  0%
Insider/Institutional 86% / 14% ROE  35%
Public Float 3 million Cash & Inv/Share  $2.42
Market Capitalization $627 million Book Value/Share  $2.48

FYE DEC 2006A 2007E 2008E
EPS($) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $0.24 $0.25A $0.34E $0.28E $0.34E
Q2 Jun 0.23 0.26E 0.30E 0.32E 0.38E
Q3 Sep 0.28 0.30E  0.33E 0.37E
Q4 Dec 0.26 0.29E 0.31E 0.32E 0.36E
Year $1.01 $1.10E $1.25E $1.25E $1.45E
P/E Ratio 37x 34x  30x 
Change 124% 9%  14% 

FYE DEC 2006A 2007E 2008E
Revenue ($ mil.) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $17 $20A $21E $22E $23E
Q2 Jun 17 20E 21E 22E 24E
Q3 Sep 18 20E 21E 22E 23E
Q4 Dec 18 20E 21E 23E 23E
Year $70 $80E $84E $89E $93E
Change 37% 15%  11% 


Rating
HOLD

12- Month Target Price
$33


Q1 EPS much lower than expected. Revenue was $20 million, compared with our estimate of $21 million and
the consensus estimate of $20 million. EPS was $0.25, much lower than our estimate of $0.34 and the consensus
estimate of $0.32.
•

We are lowering our 2007 estimates for revenue from $84 million to $80 million and for EPS from $1.25 to
$1.10 to reflect increased marketing costs and slower growth for the domestic division.  We believe that
the company intends to invest for the next few quarters to position its European operations to generate profits
next year.
•

We expect more modest earnings growth in 2007 as the company will take somewhat longer to turn a
profit internationally. As we believe investors are focused on revenue growth, we believe that slowing
growth rates may keep Travelzoo shares range-bound. In addition to its investment in Europe, the company
recently announced plans to further expand to Asia. We acknowledge that the company has the potential to grow
earnings much faster than we have modeled should it moderate spending or should European sales accelerate.
•

Until Travelzoo can demonstrate profitable growth in Europe or more rapid growth in the U.S., we find it
difficult to assign a premium multiple to its earnings. Internet travel advertising and Internet travel company
valuations remain strong, but we have near-term concerns about challenges to revenue and earnings growth
given increased competition (e.g., Priceline's Pricebreakers), which may cause share price volatility.
•

Maintaining HOLD and 12-month price target of $33, or 25x our 2008 EPS estimate of $1.25 plus $2/share
in cash. We believe that this valuation is fair, with a multiple about in line with the company's expected earnings
growth rate of 25% over the next several years.  We think that the company will be challenged to grow earnings at
greater than a 25% rate, given the moderating growth in its core U.S. business. 
•
Risks to attainment of our share price target include slower growth due to worsening macro economic factors,
future competition into outbound email travel marketing by large Internet portals, increasing subscriber acquisition
costs, and international expansion issues.

[soxguy]

David,I bought some 2 days ago when it dipped under $26. Nice to have some company. Yukii,I enjoy reading your posts because you point out  the risks that are inherent in any trade. But remember,these are not money market funds we're dealing with and I think everyone in this community accepts that. GLTA

[Terliso]

Ok, as promised, TZOO will be back to the Main Portfolio today. I've been checking their business potential and feel it is too cheap at these levels (well, I thought it was cheap the first time I bought it at $39.3, but a disappointing quarter took it down in an horrible gap down).

Yup, your valuation model sounds attractive but...

"If a stock is under many or all of the key moving averages (20-, 50-, 100-, 200- and 250-day moving averages), then that stock is probably headed lower - regardless of what the fundamentals look like. There's an old Wall Street saying that cautions, "Don't buy stocks, buy companies." Investors tend to buy companies, while traders tend to buy stocks. However, the very best investors soon realize that both components are required in order to achieve top results. Before you make an investment, it's worth a look to see if it's actually moving in the right direction, or if it's above most of its moving averages."

[BigSully1]

Ok, as promised, TZOO will be back to the Main Portfolio today. I've been checking their business potential and feel it is too cheap at these levels (well, I thought it was cheap the first time I bought it at $39.3, but a disappointing quarter took it down in an horrible gap down).

Yup, your valuation model sounds attractive but...

"If a stock is under many or all of the key moving averages (20-, 50-, 100-, 200- and 250-day moving averages), then that stock is probably headed lower - regardless of what the fundamentals look like. There's an old Wall Street saying that cautions, "Don't buy stocks, buy companies." Investors tend to buy companies, while traders tend to buy stocks. However, the very best investors soon realize that both components are required in order to achieve top results. Before you make an investment, it's worth a look to see if it's actually moving in the right direction, or if it's above most of its moving averages."

I have to agree with you Terlisa. I don't see this stock going anywhere anytime soon. If I were in it, I would look to take quick profits however small if at all possible. When a correction occurs, the weak only get weaker and the strong hold up much better. Can't at all understand why David bought this yet. Hmm.

[David Randolph]

"If a stock is under many or all of the key moving averages (20-, 50-, 100-, 200- and 250-day moving averages), then that stock is probably headed lower - regardless of what the fundamentals look like. There's an old Wall Street saying that cautions, "Don't buy stocks, buy companies." Investors tend to buy companies, while traders tend to buy stocks. However, the very best investors soon realize that both components are required in order to achieve top results. Before you make an investment, it's worth a look to see if it's actually moving in the right direction, or if it's above most of its moving averages."

Whoever wrote that, probably didn't look at hundreds or thousands of long term charts as I did. I mean, charts since the IPO. Because if he did that, he would naturally see that there are no 10 or 20 baggers without periods of weakness, periods where they break the 20, 50, 100 and 200 days moving averages, and still go higher over the long term.

However, the very best investors soon realize that both components are required in order to achieve top results

Who are these very best investors? Where are their statistics and results? A few days ago someone posted the results of the best investors of the past 10 years, there were 60 stars there, and the man that was in the first place, with a 22% average annual return, was Warren Buffett, and he of course completely disregards moving averages. Just food for thought.

[Terliso]

Whoever wrote that, probably didn't look at hundreds or thousands of long term charts as I did. I mean, charts since the IPO. Because if he did that, he would naturally see that there are no 10 or 20 baggers without periods of weakness, periods where they break the 20, 50, 100 and 200 days moving averages, and still go higher over the long term.

True, stocks breaks 20, 50, 100, 200 days and still go higher over the long term, but most of it apply only in the daily chart.

The author of that probably meant looking in the weekly chart.
Example: MSFT

[yukiii]

David,I bought some 2 days ago when it dipped under $26. Nice to have some company. Yukii,I enjoy reading your posts because you point out  the risks that are inherent in any trade. But remember,these are not money market funds we're dealing with and I think everyone in this community accepts that. GLTA

I don't point out the risks as all trades thave risks , just a reason to buy something else more attractive. TZOO I didn't like at $39 still don't like it at $26.00

[soxguy]

But isn't being counterintuitive part of this whole process? When TZOO looks bad and no one likes it,isn't that the time to buy? Just a contrarian pov.

[yukiii]

But isn't being counterintuitive part of this whole process? When TZOO looks bad and no one likes it,isn't that the time to buy? Just a contrarian pov.

No, just because a stock goes down, dosn't mean its a good buy.
I always look for good companies to buy when they are sold off and the business has not changed or in the wrong sector. But TZOO looks to be in a bad business model going forward and will find it harder to grow.

[nica33]

Interesting discussion here.....
I'm not an expert but I think why buy a stock that it's going down and it has not bottomed yet? Doing this is almost assuring more blood for the portfolio, isn't it? You can always keep it in your watchlist and buy when the technical conditions improve.  I'm not telling that the stock could not change the trend soon but it's all about probabilities.

JMHO

[yukiii]

Buy EBIX instead

Press Release   Source: Ebix, Inc.

Ebix Net Income Grows 73% in First Quarter of 2007
Tuesday May 15, 9:23 am ET
Earnings Per Share Rises 69% to $0.61

ATLANTA--(BUSINESS WIRE)--Ebix, Inc. (NASDAQ: EBIX - News):
Conference call:      Thursday, May 17, 2007 at 11:00 A.M. EDT
Webcast / Replay URL: http://www.ebix.com, Click on Investor Home Page
Dial-in numbers:      1-888-687-3295 Dial pass code 9196296
Ebix, Inc. (NASDAQ: EBIX - News), a leading international developer and supplier of software and e-commerce solutions to the insurance industry, today reported financial results for the first quarter of 2007.

Ebix reported total revenue of $9.02 million for the quarter, compared to $5.65 million for the first quarter of 2006, marking a sixty percent (60%) increase in revenues. The company's operating income for the quarter rose eighty-nine percent (89%) to $2.24 million, as compared to $1.18 million in the first quarter of 2006.

Net income after taxes for the quarter rose seventy-three percent (73%) to $1.96 million, or $0.61 per diluted share, up from $1.13 million, or $0.36 per diluted share, in the first quarter of 2006-- reflecting earnings per share growth of sixty-nine percent (69%). Results for the first quarter of 2007 were based on 3.22 million weighted average diluted shares outstanding, as compared to 3.14 million in the first quarter of 2006. Basic earnings per share in the first quarter of 2007 rose sixty-eight percent (68%) to $0.69 as compared to $0.41 in the first quarter of 2006.

The company's operating expenses for the quarter grew by fifty-two percent (52%) to $6.78 million as compared to $4.47 million for the first quarter of 2006. The company attributed the increase primarily to the acquisition of Infinity Consulting and Finetre in May 2006 and October 2006 respectively.

Robin Raina, President and CEO, Ebix said, "We are pleased to have started 2007 on a strong note. Our business fundamentals remain strong and in the coming quarters, we intend to continue our efforts to grow the company."

Raina added: "Our cash position remains strong and we intend to devote some of our cash to making additional strategic acquisitions in the insurance market space. To fund these acquisitions, we intend to only use means that allow us to keep any acquisitions accretive from an earnings perspective."

The company's product and service strategy focuses on four areas:

1. Insurance Carrier System Products. Insurance carrier system services
have centered around two products, Infinity Systems and Business
Reinsurance and Insurance Company System (BRICS). Infinity Systems is a
comprehensive, fully integrated, client server technology policy and
claims administration system designed for small-to-medium sized property
and casualty insurers. It is also used by large insurers to administer
niche products and specialty lines. The BRICS product is a .NET-based,
end-to-end carrier management system that includes key modules such as
policy management, claims administration, underwriting, rating, and
general ledger. The system is fully configurable for each customer and
is provided in an ASP or client hosted mode.

2. Broker/Agency Management Systems. The broker/agency channel is
served by several products and services, including EbixASP, eGlobal,
Winbeat and customer software development projects. EbixASP is a
web-enabled system for insurance agencies to manage their businesses and
is sold both as a hosted and a self-hosted product. The company-hosted
product generates revenues through initial registration and ongoing
monthly subscription fees based on the number of personnel accessing the
software. Ebix also focuses on providing self hosted broker systems,
under the name Winbeat to small and midsize brokers in the Australian
market. Ebix also licenses eGlobal, its agency management software
product line, in the international markets to the very large brokers.
eGlobal is a multi-lingual and multi-currency modular agency management
solution and it is sold in a hosted or client installed mode.

3. Exchange and Connectivity. The company's exchange suite of products
provide connectivity between consumers, agents, carriers, and third
party providers, and includes, WinFlex, Vital Suite, EbixExchange,
AnnuityNet and LifeSpeed. WinFlex and Vital Suite are EbixLife services
that provide sales illustrations and quote comparison services to
insurance brokers, carriers and wholesalers operating in the life
insurance, annuity and long-term care markets. EbixExchange is an
Internet based service to facilitate connectivity for upload, download,
and data exchange between carriers, agents and third party providers.
The AnnuityNet platform is an exchange service that is designed to link
annuity distributors and issuers by providing workflow routing,
compliance and application vetting for annuity products. The LifeSpeed
platform is an exchange service designed to connect life insurance
distributors and carriers, providing workflow automation, data
collection and status of life insurance sales.

4. BPO Services. The company has developed a business process
outsourcing service based in India that provides custom software
development services and back-end call center services primarily for
brokers and insurance carriers.

With bases in Singapore, Australia, the US, New Zealand, India and
Canada, Ebix employs insurance and technology professionals who provide
products, support and consultancy to more than 3,000 customers on six
continents.

[bjc]

I know David doesn't worry about liquidity anymore, but EBIX is INCREDIBLY illiquid.  Those big volume days were still only about 40 or 50 thousand shares.  Under 6k traded today.  I guess this may not matter, but it's just something to consider. If it became a 3sof pick, it would easily move a  few points I think.

[jorgegr]

Problem is not getting in, because you can decide when & what to do,
the bloodshed is when you want to get out.

If you can stay tunned the whole day long you may succeed, otherwise
my policy is to stay away from pinks and illiquid stocks.

[BigSully1]

Problem is not getting in, because you can decide when & what to do,
the bloodshed is when you want to get out.

If you can stay tunned the whole day long you may succeed, otherwise
my policy is to stay away from pinks and illiquid stocks.

Yeah a TCHC type implosion would be bloody murder on this one. Ouch!

[David Randolph]

Can't at all understand why David bought this yet.

Hi BigSully, I said I would, and I did. If I said I would, and I didn't, you would say: "you didn't do what you said you would do" . The stock looks attractive to me, from a fundamental standpoint.

The author of that probably meant looking in the weekly chart.

In your copy/paste the author specifically wrote "daily" moving averages:

"If a stock is under many or all of the key moving averages (20-, 50-, 100-, 200- and 250-day moving averages) ...

But isn't being counterintuitive part of this whole process? When TZOO looks bad and no one likes it,isn't that the time to buy? Just a contrarian pov.

That has been the case soxguy, as one can see at the chart below:

No, just because a stock goes down, dosn't mean its a good buy.
I always look for good companies to buy when they are sold off and the business has not changed or in the wrong sector. But TZOO looks to be in a bad business model going forward and will find it harder to grow.

Bad business model? They had a net profit margin of 20.58% in Q1 2007, even though they lost money in Europe. And even though they paid 48.2% in taxes. This is the company that pays the highest tax rate I've ever seen, they should change their headquarters from NY to the Cayman Islands, the stock would double overnight

Interesting discussion here.....
I'm not an expert but I think why buy a stock that it's going down and it has not bottomed yet? Doing this is almost assuring more blood for the portfolio, isn't it? You can always keep it in your watchlist and buy when the technical conditions improve.  I'm not telling that the stock could not change the trend soon but it's all about probabilities.

JMHO

More blood? The Main Portfolio is up 20.28% so far in 2007 (a 55% annualized return), more than in the whole year of 2006 (when the strategy was almost exclusively technical), even though I made several mistakes, like buying TZOO at the top of its range, for example.

Anyway, what do you mean by "technical conditions improving"? The way I see it now, what you mean is: "why don't you wait to buy the stock at a higher price?" Lol, just kidding.

I know the trend is your friend and I respect the market. If you look at the Main Portfolio holdings, most of them have bullish charts. But why always give more weight to technical analysis than to fundamental analysis? Moreover, TZOO's chart is one of those where the technical analyst, buying when the trend was bullish and selling when the trend was bearish, was buying near the highs and selling near the lows. This is because the stock has been stuck in a long term trading range, between roughly $25 and $40. I believe I'm buying near the bottom of the trading range of this stock.

I have a book, one of the first ones I read about the stock market, that says the following about moving averages:

«Médias móveis funcionam muito bem em acções em tendência. Em mercados laterais deveriam antes chamar-se merdas móveis»  hahaha

Translation: "Moving averages work very well in trending stocks. In lateral stocks they should be called shitty averages instead" (it works better in Portuguese).

Ok, going back to TZOO. Company pays a lot of taxes. Still earns a lot of money. Business is expanding in Europe and Asia, but still losing money there. Business model should work as well in Europe and Asia as it did in the USA (perhaps even better in Europe, people travel more here), so these units will probably be profitable in the future.

Without Europe and Asia dragging down profits, instead contributing to them, TZOO may very well double the EPS it got in 2006, which was $1.01, to $2, in two years time. The Internet Information Providers industry trades at 32 times earnings. If you apply the industry average valuation to TZOO you get a $64 stock.

I'll keep holding the stock, regardless of short term technical fluctuations.