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Travelzoo Shares Surge on Sale Report

Stocks in this article: TZOO PCLN EXPE

NEW YORK ( TheStreet) -- Struggling online travel company Travelzoo (TZOO) is reportedly considering an outright sale, as weakness in its core travel-related advertising revenue led to an over 70% stock drop in the last 12 months.

Travelzoo is in the process of hiring a financial adviser, as the company looks for an acquirer of its Web and newsletter businesses that link vacationers with flight, hotel and resort deals, according to a Reuters report, citing three unnamed sources. Private equity firms, including Permira, and online travel company ODIGEO, have already shown takeover interest in Travelzoo, the report said.

Travelzoo competes in the online market for travel deals with (PCLN), Expedia (EXPE) and Tripadvisor (TRIP), however it doesn't directly offer travel packages. Instead, Travelzoo calls itself an internet "media company" and earns advertising revenue tied to travel deal recommendations to its 24 million newsletter subscribers and visitors of its website.

In 2010, ITA Software was bought by Google (GOOG) for $700 million in one of the largest online travel deals of recent years. Prior to speculation of an eventual takeover, Travelzoo had a market cap of $336 million.

In the last 12 months, Travelzoo shares have plummeted as the company's advertising earnings fell short of analyst expectations. Travelzoo shares were up near-30% at the open on Wednesday.

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Online travel companies like Priceline, Tripadvisor and Expedia have all seen their shares rise sharply in 2012, on expectations that earnings related to direct travel bookings will rise. On Wednesday, Goldman Sachs analysts raised their price target for to $875 from $700.

In contrast, Travelzooo's share price fall started in July when it reported weaker than expected second quarter earnings on a slowdown in Europe and higher than expected costs. Shares continued to drop in January when the company reported fourth quarter revenue of $35.2 million, missing estimates. Still, the company reported a better than expected profit of 40 cents a share in the quarter and saw overall revenue rise 32% in 2011 to $148 million.

The New York-based company has opened its newsletters to daily deals from travel-related businesses as it begins to compete against Groupon (GRPN) and (AMZN) in the daily deals market.

Travelzoo founder and current director Ralph Bartel has a 53.3% ownership in the company, while his brother Holger Bartel acts as the company's chairman.

For more on deal trends, see 5 deal ready stocks loved by hedge funds portfolios. See five stocks that could be trampled by a share overhang, for more on insight into private equity-related stock investments.

-- Written by Antoine Gara in New York

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