Is Travelzoo (TZOO) a Solid Growth Stock? 3 Reasons to Think "Yes"

Groupon GRPN reported adjusted earnings of 33 cents per share in the third quarter of 2024, beating the Zacks Consensus Estimate of a loss of 25 cents by 232%. The company reported a loss of $1.31 per share in the year-ago quarter.

The company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, delivering an average surprise of 107.77%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Revenues of $114.5 million missed the consensus estimate by 3.8%. The figure also decreased 9% on a year-over-year basis (down 10%, excluding the foreign exchange effect).

Region-wise, North America revenues of $86.9 million lagged the consensus mark by 3.68% and declined 9% year over year due to an increase in Local voucher redemption rates in the reported period. International revenues of $27.6 million missed the consensus mark by 4.85% and decreased 13% year over year (down 14%, excluding the foreign exchange effect) due to the exit of Local business in Italy.

Groupon, Inc. Price, Consensus and EPS Surprise

Groupon, Inc. price-consensus-eps-surprise-chart | Groupon, Inc. Quote

GRPN has lost 19.4% against the Zacks Retail-Wholesale sector’s growth of 25.4% in the year-to-date period.

GRPN’s Quarterly Details

Local revenues of $105 million missed the Zacks Consensus Estimate by 5.81% and declined 9% year over year (10% excluding the foreign exchange effect). North America Local revenues decreased 8%, while International Local revenues declined 2% year over year.

Consolidated Travel revenues of $4.3 million beat the consensus mark by 7.28% and increased 3.4% year over year. North America Travel revenues increased 13.3% year over year. International Travel revenues declined 12.7% in the reported quarter.

On a consolidated basis, Goods revenues of $5.2 million beat the consensus mark by 14.58% and declined 23.8% year over year. North America Goods revenues declined 34.5%, while International Goods revenues decreased 11.7%, excluding the foreign exchange effect, on a year-over-year basis.

GRPN’s Customer Metrics

At the end of the third quarter, Groupon had approximately 15.5 million active customers compared with 17 million at the end of the year-ago quarter. However, the metric beat the Zacks Consensus Estimate by 3.68%.

At the end of the third quarter, the company had approximately 10.2 million active customers based in North America, beating the consensus mark by 6.58% and 5.3 million active international customers, missing the consensus mark by 1.49%.

Operating Details of GRPN

In the third quarter, gross profit was $102.9 million, down 7% year over year.

Selling, general and administrative expenses fell 10.8% year over year to $71.3 million in the reported quarter. This can be attributed to a decrease in cloud costs. Marketing expenses rose 25.4% to $36.3 million.

The company reported a GAAP operating loss of $5.6 million compared with a loss of $464K in the year-ago quarter.

GRPN’s Balance Sheet & Cash Flow

Groupon exited the quarter with cash and cash equivalents of $159.7 million, up from $178.1 million as of June 30, 2024.

In the third quarter, the operating cash outflow was $16.3 million against the operating cash inflow of $15.3 million in the prior quarter.

Groupon reported a free cash outflow of $19.7 million against $10.8 million of free cash inflow reported in the previous quarter.

GRPN has penned an agreement to raise $197 million in new secured convertible debt, maturing in 2027 with a 6.25% coupon and a $30 strike price.

GRPN’s Guidance

For the fourth quarter of 2024, the company expects revenues in the band of $124-$131 million, indicating a 10-5% year-over-year decline. The Zacks Consensus Estimate for fourth-quarter 2024 revenues is pegged at $144.38 million, indicating 4.83% year-over-year growth.

Adjusted EBITDA is expected to be between $14 million and $19 million.

Groupon expects a positive free cash flow for the fourth quarter.

For 2024, the company expects revenues between $486 million and $493 million, indicating a year-over-year change in the band of (6)-(4%).

Adjusted EBITDA is expected to be between $65 million and $70 million.

Groupon expects a positive free cash flow for 2024.

GRPN’s Zacks Rank & Stocks to Consider

Groupon currently carries a Zacks Rank #3 (Hold).

Investors interested in the broader retail-wholesale sector can consider some better-ranked stocks like Booking Holdings BKNG, Amazon AMZN and Travelzoo TZOO, each of which carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BKNG has gained 41.6% in the year-to-date period. The long-term earnings growth rate for BKNG is currently estimated at 15.68%.

Shares of Amazon have gained 38.1% in the year-to-date period. The long-term earnings growth rate for AMZN is currently expected at 20%.

Travelzoo has gained 100.7% in the year-to-date period. The long-term earnings growth rate for TZOO is currently anticipated at 8.72%.

Zacks Investment Research

Momentum investing revolves around the idea of following a stock's recent trend in either direction. In the 'long' context, investors will be essentially be "buying high, but hoping to sell even higher." With this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving that way. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.

Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.

Below, we take a look at Travelzoo (TZOO), a company that currently holds a Momentum Style Score of A. We also talk about price change and earnings estimate revisions, two of the main aspects of the Momentum Style Score.

It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. Travelzoo currently has a Zacks Rank of #2 (Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following one-month period.

You can see the current list of Zacks #1 Rank Stocks here

Set to Beat the Market?

In order to see if TZOO is a promising momentum pick, let's examine some Momentum Style elements to see if this global media commerce company holds up.

Looking at a stock's short-term price activity is a great way to gauge if it has momentum, since this can reflect both the current interest in a stock and if buyers or sellers have the upper hand at the moment. It is also useful to compare a security to its industry, as this can help investors pinpoint the top companies in a particular area.

For TZOO, shares are up 14.15% over the past week while the Zacks Internet - Commerce industry is flat over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 36.02% compares favorably with the industry's 1.57% performance as well.

While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Over the past quarter, shares of Travelzoo have risen 43.81%, and are up 114.72% in the last year. On the other hand, the S&P 500 has only moved 13.08% and 38.58%, respectively.

Investors should also pay attention to TZOO's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. TZOO is currently averaging 167,798 shares for the last 20 days.

Earnings Outlook

The Zacks Momentum Style Score encompasses many things, including estimate revisions and a stock's price movement. Investors should note that earnings estimates are also significant to the Zacks Rank, and a nice path here can be promising. We have recently been noticing this with TZOO.

Over the past two months, 3 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost TZOO's consensus estimate, increasing from $0.97 to $1.09 in the past 60 days. Looking at the next fiscal year, 1 estimate has moved upwards while there have been 1 downward revision in the same time period.

Bottom Line

Given these factors, it shouldn't be surprising that TZOO is a #2 (Buy) stock and boasts a Momentum Score of A. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep Travelzoo on your short list.

Zacks Investment Research

Groupon GRPN is scheduled to report third-quarter 2024 results on Nov. 12.

For the third quarter of 2024, Groupon expects revenues in the band of $114-$120 million, indicating a 5-10% year-over-year decline. The Zacks Consensus Estimate for revenues is pegged at $119.02 million, implying a decline of 5.89% from the year-ago reported figure.

The consensus mark for loss is pegged at 25 cents per share. The company had incurred a loss of 12 cents per share in the year-ago quarter.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

In the last reported quarter, Groupon delivered a negative earnings surprise of 100%. GRPN’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing the same in one, the average being 107.77%.

Groupon, Inc. Price and EPS Surprise

Groupon, Inc. price-eps-surprise | Groupon, Inc. Quote

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Groupon this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

GRPN has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell) at present.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Consider

Solid momentum across the local category in the North American region is expected to have been a major growth driver of the company during the quarter under review.

Increasing focus on rebuilding its performance marketing channels, reducing reliance on promotional spending and improving supply quality through sales transformation efforts is likely to have contributed well to its top-line growth in the third quarter of 2024.

Rising demand across its enterprise customers is expected to have been a tailwind for the company in the to-be-reported quarter.

Growing momentum in Groupon’s things to do vertical is expected to have aided its revenue growth in the quarter under review.

Groupon’s increasing efforts to improve deal recommendations on the back of AI are likely to have boosted its performance in the third quarter.

However, sluggishness in its goods categories and a weakening international market are expected to have been major headwinds for the company. The consensus estimate for International revenues is pegged at $29 million, suggesting a fall of 8.1% year over year.

Unexpected site stability issues related to its cloud migration project have also been heavily affecting the company’s performance.

The Zacks Consensus Estimate for Goods revenues is pinned at $4.56 million, indicating a decline of 33.5% from the year-ago reported figure.

Groupon’s business model makes it heavily dependent on daily deals, which is a major headwind. Since most of the offerings are consumer discretionary products, demand is heavily dependent on macroeconomic conditions.

The company operates in a highly competitive market, wherein it faces significant competition from the likes of Yelp YELP, Rakuten, Travelzoo TZOO and Wowcher.

Given this, the ongoing market uncertainties, persistent inflation, looming recessionary fears, changing consumer demand and spending patterns are expected to have dampened the company’s near-term prospects in the quarter under review.

Price Performance & Valuation

Groupon has seen its stock decline 14.6% year to date, underperforming the Zacks Retail-Wholesale sector’s return of 25.3%. This pullback has some investors wondering if it is a selling opportunity for the high-growth software company ahead of third-quarter earnings results.

Year-to-Date Performance

It is also important to consider whether the stock's current valuation accurately reflects the company's long-term growth potential and ability to navigate the competitive landscape. Groupon is trading at a premium with a forward P/E ratio of 29.26X compared with the Zacks Internet - Commerce industry’s 25.36X, reflecting a stretched valuation.

GRPN’s P/E F12M Ratio Depicts Stretched Valuation

Investment Considerations: Balancing Risk and Reward

Groupon's upcoming third-quarter 2024 earnings are likely to reflect the company's continued struggles in an increasingly competitive local commerce landscape. Despite management's efforts to streamline operations and pivot toward higher-margin offerings, the platform's declining merchant base and waning consumer engagement raise concerns about sustainable growth. The recent cost-cutting initiatives, while necessary, may not be sufficient to offset the fundamental challenges in their business model. With local merchants increasingly adopting direct-to-consumer marketing strategies and younger consumers showing limited interest in daily deals, Groupon's path to meaningful profitability remains uncertain. The stock appears vulnerable to further downside if revenue continues its deteriorating trend.

Conclusion

Given Groupon's operational headwinds and uncertain growth trajectory, investors should exercise caution ahead of third-quarter 2024 earnings. The company's challenges in merchant retention and user acquisition suggest potential downside risks that outweigh immediate opportunities. We recommend investors remain on the sidelines until there are clear signs of sustainable revenue growth and operational efficiency improvements, making a better entry point likely to emerge in the future.

Zacks Investment Research

Trump Will Fix It

In my previous post (The Post-Trump Victory Trade), I highlighted a half dozen stocks in which my subscribers and I had positions that had double digit gains the day after Trump’s election victory. In response, a commenter wrote, “Well, I didn’t like any of those trades, so I will stick to my Gold and Silver.”.

As it happened, the day after Trump’s victory, was also the day of the “Great Gold Puke“, as The Market Ear put it:

All good things...

....must come to an end. Gold is puking, putting in the biggest down candle in forever as it breaks below the short term trend channel. The 50 day comes in around $2635, and the bigger trend line around $2600.

Refinitiv

Why would gold tumble after Trump’s victory? Perhaps there’s a clue in the Trump campaign’s slogan, “Trump will fix it”. One of the things Trump will fix is the elevated geopolitical risk the world has seen over the last few years, starting with the Russia-Ukraine War, and extending to the wars in the Mideast between Israel and Hamas, and Israel and Iran, and tensions between China and Taiwan.

Geopolitical Risk Is Already Starting To Ebb

The geopolitical risk premium is a key factor influencing the price of precious metals like gold and silver, as they are traditionally seen as a haven during times of instability and war. Given that, note what has happened since Trump’s victory:

• Hamas has called for an end to its war with Israel.
• Russian President Vladimir Putin has congratulated Trump on his victory, praised Trump’s bravery during the first assassination attempt on him, and expressed an openness toward talks aimed at ending the Ukraine war. Peace between the U.S. and Russia would facilitate peace in the Mideast and elsewhere, given Russia’s ties to Iran, China, and other key countries.
• China’s President Xi also extended congratulations and an olive branch to Trump.

If Trump succeeds in ending the wars in Eastern Europe and the Mideast, and calming tensions across the Taiwan Strait, that would further reduce gold’s geopolitical risk premium.

The Deflationary Potential Of Trump’s Domestic Policies

You’re probably thinking now that even if peace starts to break out, high inflation is baked into the cake because of government spending, and that should boost the price of gold. Consider, though, the deflationary potential of Trump’s proposed policies, and those of his close allies.

• Trump’s tariffs. Critics of tariffs often point out that they are, effectively, a regressive tax on domestic consumers. This is actually true, and like all regressive taxes, they are deflationary. Just as throwing money and low income Americans boosted inflation during COVID, an effective regressive tax on them would cool inflation.
• Trump’s deportations. Deporting millions of illegal aliens–or deporting a smaller number and prompting millions more to self-deport–will have a deflationary effect on sectors such as housing, as there will be fewer consumers competing for the same number of homes.
• RFK, Jr.’s campaign against chronic disease. Every case of diabetes and other chronic diseases RFK, Jr. can prevent with changes to American food policy means a reduction of tens of thousands, if not hundreds of thousands of dollars in health care spending. That would cool healthcare inflation.
• Elon Musk’s Department Of Government Efficiency. Elon Musk has spoken about slashing the number of federal employees (something Vivek Ramaswamy pointed out could be done while avoiding Civil Service regulations) and cutting government waste. That would be deflationary too.

Much Of This Is Likely To Happen

We all remember how Trump was stymied in his first term, but he is in a much stronger position now. He won a landslide victory, and is now the undisputed leader of the Republican Party. Plus, he has much smarter, and more competent people on his side now, such as Elon Musk. None of this is particularly good for gold and silver prices.

Taking My Own Counsel

On Thursday, I exited the two gold positions I had, in Olra Mining (ORLA) and IAMGOLD (IAG), as you can see below, in my list of trade exits for this week.

Stocks or Exchange Traded Products

• Lantheus Holdings . Bought at $94.84 on 8/16/2024; stopped out at $96.99 on 11/6/2024. Profit: 2.3%.
• Orla Mining (ORLA 4.11%↑). Bought for an effective price of $2.90 on 11/17/2023 (I sold $5 strike puts on it for $2.10, and those puts exercised on 11/17/2023); sold for $4.60 on 11/7/2024. Profit: 59%.

Options

• Call spread on Super Micro Computer . Entered at a net debit of $0.33 on 11/4/2024; will expire worthless on 11/8/2024. Loss: 100%.
• Calls on IAMGOLD . Bought for $0.75 on 10/8/2024; sold (second half) for $1.15 on 11/7/2024. Profit: 53%.
• Calls on Emergent BioSolutions . Bought for $2.05 on 8/30/2024; sold for $4.10 on 11/7/2024. Profit: 100%.
• Call spread on TG Therapeutics (TGTX 2.33%↑). Entered at net debit of $0.33 on 8/30/2024; exited at a net credit of $0.94 on 11/8/2024. Profit: 184%.
• Call spread on Tesla . Entered at a net debit of $1.63 on 4/8/2024; exited at net credit of $4.74 on 11/8/2024. Profit: 191%.
• Call spread on Innodata . Entered at $0.33 on 8/13/2024; exited at $0.97 on 11/8/2024. Profit: 194%.
• Call spread on Powell Industries . Entered at a net debit of $1.60 on 8/13/2024; exited at a net credit of $4.75 on 11/7/2024. Profit: 197%.
• Calls on Travelzoo . Bought at $1 on 7/23/2024; sold (half) at $8.30 on 11/6/2024. Profit: 730%.

The Post-Trump Victory Trade We’re Buying Now

Trump’s victory means China is going to have to stimulate its economy more aggressively (because it won’t be able to export as much to the U.S. with Trump’s tariff).

That stimulus will boost companies doing business in China’s domestic market. One of those companies hit our top ten names last night, and my subscribers and I placed a trade on it today.