Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.
This week, the duel is between two online travel companies: Expedia Group Inc. (NASDAQ: EXPE) and Travelzoo (NASDAQ: TZOO).
The Case For Expedia Group: This company first entered the digital universe in 1996 as a division of Microsoft Corporation (NASDAQ: NASDAQ:MSFT) before being spun off as a public company in 1999. It was acquired by IAC/InterActiveCorp in 2003 and became part of IAC Travel, only to be spun off as Expedia Inc (NASDAQ:EXPE). in 1995.
Over the years, the Seattle-headquartered company expanded through a series of acquisitions of major online travel sites including Travelocity, Trivago and Orbitz; its other assets include Hotels.com, Vrbo, CheapTickets and CarRentals.com.
Among its most recent corporate developments, Expedia Group signed an agreement last month to become a preferred redistributor of InterContinental Hotels Group PLC (NYSE: IHG) properties’ wholesale rates through Expedia Group’s Optimized Distribution Preferred program. Last November, American Express Company (NYSE: NYSE:AXP) Global Business Travel completed its acquisition of Egencia, Expedia Group’s corporate travel arm, for an undisclosed sum. That was the company’s second divestiture of the year, following its March 2021 sale of Classic Vacations to the Phoenix-based private equity firm Najafi Companies.
In its most recent quarterly earnings report, the fourth-quarter 2021 data published on Feb. 10, Expedia Group recorded $2.2 billion in revenue, up from the $920 million in COVID-19 pandemic-era fourth-quarter 2020. The fourth-quarter net income was $276 million, compared to the $476 million net loss from one year earlier, and the quarter’s $1.70 diluted earnings per share was an improvement from the -$2.89 in the previous year.
CEO and Vice Chairman Peter Kern noted that the fourth quarter saw “yet another significant travel disruption from COVID,” although the impact was less severe than earlier disruptions, and he predicted a “solid recovery” this year.
“As we put more of the pandemic behind us, we focus on a brighter year ahead. We are increasing our speed of innovation for travelers, our breadth of tools to help power the travel ecosystem, and our effectiveness and efficiency as a company,” Kern said. “This is a big year of delivery for Expedia Group, and we look forward to helping drive a robust revival of our industry and great traveler experiences.”
Expedia Group shares opened for trading on Wednesday at $188.50, sandwiched between its 52-week range of $136.77 and $217.72.
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The Case For Travelzoo: This New York City-based company opened for business in October 1998 under the leadership of Ralph Bartel, a former journalist who financed this endeavor with a $10,000 investment. Four years later, the company went public.
The company’s assets include the Travelzoo website and apps, its Top 20 email newsletter and Newsflash email alerts, and the Travelzoo Network of third-party websites listing travel deals published by the company. The company also publishes Local Deals and Getaway listings that offer vouchers from hospitality-focused businesses including hotels, restaurants and spas. The company claims a global membership base of 30 million.
In its recent corporate developments, Travelzoo announced earlier this week it was launching a division that would offer members exclusive access to metaverse travel experiences, although it is not producing these experiences itself. Earlier in the month, the company announced the appointment of Arveena Ahluwalia as global director for its Premium Membership product line. She was previously chief financial officer at lingerie brand Evelyn & Bobbie, while earlier in her career she was a vice president of global real estate at Citigroup Inc (NYSE: NYSE:C) and a financial analyst at Alphabet (NASDAQ:GOOGL) Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) and UBS Group (NYSE: UBS) Investment Bank.
According to its most recent quarterly earnings, the fourth-quarter 2021 data published on March 3, Travelzoo recorded revenue of $14 million, up from $12.4 million one year earlier, but it also recorded a net income loss of $3 million versus net income in fourth-quarter 2020 of $727,000. The company’s earnings per share of -25 cents was less impressive than the 2 cents recorded in the prior-year period.
“The surge of the omicron variant and related increased safety measures during fourth quarter 2021 affected our reported revenue and operating income,” said Holger Bartel, Global CEO for Travelzoo. "We believe this to be a short-term effect. We expect the company’s financial performance to significantly improve in 2022.”
Travelzoo shares opened for trading on Wednesday at $5.30, a shade above its’ 52-week low of $5.21 and far from its 52-week high of $19.83.
The Verdict: The pandemic did a world of damage to the hospitality industry, and online travel companies such as Expedia Group and Travelzoo struggled mightily. It is difficult to determine what 2022 could bring to the travel industry — the ongoing lockdown of the entire Chinese city of Shenzhen reminds us that the coronavirus is not ready to retire into the history books, while the inflationary U.S. economy and the financial aggravations fueled by Russia’s war in Ukraine would suggest many Americans will be tightening their proverbial belts this year and cutting back on many expenses, with travel perhaps being the easiest experience to jettison.
Travelzoo deserves kudos for taking a proactive lead in exploring the metaverse, which is still unchartered territory for most travel-related companies. But whether that will provide a financial boost remains to be seen.
The company had the bad luck to acquire 60% of Jack’s Flight Club, a membership subscription service, two months before the pandemic took root in the U.S. In its latest earnings report, the company reported Jack’s Flight Club revenue decreased 13% year-over-year to $803,000.
In comparison, Expedia Group has a more diverse focus, with a wider selection of brand assets and operations. In the fourth quarter, lodging accounted for 75% of the company’s revenue, while advertising and media accounted for 7%, air tickets accounted for 3% and all other revenues accounted for the remaining 15%.
Furthermore, Expedia Group’s stock has been mostly steady over the past 52 weeks while Travelzoo’s stock is stuck at the low end of its 52-week range. That might excite some bargain shoppers, but if inflation gets worse over the next several months it would not be hard to imagine the stock sinking lower.
For this Stock Wars duel, we give the nod to Expedia Group as the more solid of the two companies. The next few quarters do not promise to be an easy time for any travel-focused company, but Expedia Group appears to be in a stronger position to weather whatever storms arise.
Photo: Lars Nissen / Pixabay
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