Travelzoo Loses Altitude

Travelzoo officials declined to comment, saying it would be inappropriate, given all the "volatility" in the stock. But when compared with online competitors such as Orbitz(ORBZ), Priceline(PCLN) and Travelocity, Travelzoo ranks as one rather small fish in a big ocean.

Over the first six months of 2004, Travelzoo had $13.6 million in revenue and $2.3 million in net earnings. By comparison, Orbitz had revenue of $146 million and net income of $12 million, while priceline.com had $483 million in revenue and $15.7 million in net income.

Travelzoo's fans point out that the company, while smaller than other online ventures, is growing at a faster pace. Revenue is running 70% higher at the company compared with a year ago, while profits are up over 100%. But a good deal of that revenue gain stems from an increase in advertising rates earlier this year.

The company also will likely be forced to spend more on advertising in the future to keep pace with its competitors. Over the first six months, it spent $7.1 million on sales and marketing. Orbitz, meanwhile, spent nine times that amount during the same period. With $5.2 million in cash on hand, Travelzoo will have to look elsewhere for money if it gets into a spending war with its many competitors.

Some are beginning to speculate that Travelzoo may use its frothy valuation as an opportunity to do a secondary stock offering, in order to free up more stock for trading and raise additional capital. Others suggest Travelzoo could use its stock to make an acquisition in order to expand its business.

But for now, all of that is just conjecture. For the moment, Travelzoo is nothing more than one awfully pricey stock.

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