The travel and hospitality sector has been badly hurt by the COVID-19 pandemic. However, with more and more people worldwide now being vaccinated for the virus, analysts expect solid demand for travel in the coming months. This, coupled with the latest recovery bill that is on the cusp of passage in the U.S. Senate, is causing experts to anticipate a sharp recovery in discretionary spending.
As a result, Expedia Group, Inc. (EXPE) and Travelzoo (TZOO), two of the leading online travel companies, have been grabbing the spotlight. Both the stocks generated decent returns over the past three years.
While EXPE returned 60.4% over this period, TZOO gained 132.7%. In terms of year-to-date performance, TZOO is a clear winner with 52.2% returns versus EXPE’s 23.4% gain.
But which of these stocks is a better pick now? Let’s find out.
Business Structure and Latest Movements
EXPE operates as an online travel company in the United States and internationally. Its brand portfolio includes a full-service online travel brand, marketplace for accommodations, car rental booking service, luxury travel specialist, and booking cruises. The company operates through retail, B2B, and Trivago segments.
EXPE recently upsized its previously announced cash tender offer for its outstanding 6.250% senior notes from $950 million to $1.3 billion. In addition, the company issued unsecured senior notes last month in a concurrent private offering of $1 billion to improve its liquidity.
TZOO delivers travel, entertainment, lifestyle and local deals from travel and entertainment companies and local businesses in Asia Pacific, Europe, and North America. The company has worked in partnership with more than 5,000 top travel suppliers in the past 20 years and boasted 30.5 million members worldwide as of September 30, 2020.
In December , TZOO won the “Best Travel Deals Finder” at the prestigious British Travel Awards for the ninth consecutive year. The company was also named “Germany’s Best Deal” by popular German news magazine Focus Money in its annual national consumer survey in October last year.
Recent Financial Results
In the fourth quarter, ended December 31, 2020, EXPE’s revenues were $920 million, declining 38.8% sequentially. Declines across its lodging, air and other travel products were broadly in-line with the previous quarter. Its gross booking declines worsened in November with the onset of a new wave of COVID-19 cases, before moderating slightly in December. In fact, its gross bookings also declined 12.3% quarter-over-quarter to $7.57 billion. The company reported a loss of $2.64 per share, compared to the quarter-ago loss of $1.56 per share.
In the third quarter ended September 30, 2020, TZOO’s revenue increased 97% sequentially to $13.8 million. Its North America business segment revenue surged 118% quarter-over-quarter to $9.1 million on the back of 16.5 million unduplicated members. However, the company reported a loss of $0.12 per share, representing a significant improvement from its quarter-ago loss of $0.55 per share.
Past and Expected Financial Performance
While EXPE’s revenue has declined at a CAGR of 19.8%, over the past three years, its total assets grew at a CAGR of 0.3% over this period.
The market expects EXPE’s revenue to increase 44.3% in the current year (ending December 31, 2021) and 39.3% next year. The company’s EPS is expected to grow 92.5% in the current year and 930.3% next year. However, its EPS is expected to shrink at an average rate of 15.1% per annum over the next five years.
In comparison, TZOO’s revenue has declined at a CAGR of 11.8% over the past three years but its total assets grew at a CAGR of 28.4% over this period.
The market expects TZOO’s revenue to decline 50% in the current year (ending December 31, 2021), but improve 37.9% next year. Its EPS is expected to decline 350% in the current year but increase 136.5% next year. Moreover, TZOO’s EPS is expected to grow at a rate of 19.8% per annum over the next five years.
EXPE’s trailing-12-month revenue is more than 70 times TZOO’s. However, TZOO is more profitable with a gross profit margin of 84.6% versus EXPE’s 67.7%.
In terms of trailing-12-month p/s, EXPE is currently trading at 4.45x, 97.8% more expensive than TZOO, which is currently trading at 2.25x. TZOO is less expensive in terms of trailing-12-month ev/sales also (1.85x versus 5.95x).
TZOO looks much more affordable here.
While EXPE has an overall rating of D, which translates to a Sell in our proprietary POWR Ratings system, TZOO has an overall rating of B, which equates to a Buy.
In terms of Value Grade, TZOO has been graded a B, given its lower-than-industry p/e ratio. In comparison, EXPE’s Value Grade of C is reflective of its stretched valuation.
TZOO has a Quality Grade of A versus EXPE’s C. Of 68 stocks in the Internet industry, EXPE is ranked #57 while TZOO is ranked #2.
Beyond what I’ve stated above, our POWR Ratings system has also rated both EXPE and TZOO for Growth, Momentum, Stability and Sentiment. Get all the EXPE ratings here. Also, Click here to see the additional POWR Ratings for TZOO.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The solid pent-up demand for travel suggests that the travel sector may recover sooner than expected. People have been saving money all through last year so that they can travel more this year as the pandemic recedes. Hence, both EXPE and TZOO could prove to be good long-term investments considering their market dominance and promising prospects. However, TZOO appears to be a better buy right now based on the factors discussed here.
Click here to learn about other top-rated Internet stocks.
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shares rose $0.30 (+0.08%) in after-hours trading Thursday. Year-to-date, has gained 0.75%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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