Skift Take

Travelzoo's founder Ralph Bartel has seen the value of his investment in the public company go from north of a billion to less than $100 million over two decades. Could the chairman of the company be seeking an exit with a sale to a buyer in Asia?

Travelzoo is famously controlled by Ralph Bartel, its founder, chairman, and majority shareholder. Some recent signals hint that Bartel aims to sell his email-newsletter-focused, daily deals company. To snare a deal, he may be renovating it to make it more appealing to potential acquirers in Asia.

Bartel once thought Travelzoo, which he founded in 1998, would make him rich.

For a while, that seemed possible. In 2004, the New York-based company touched all-time highs in the stock market of $95 a share. The German-born New Yorker owned 13.3 million shares of the company’s stock, or about 83 percent of the outstanding shares. So the price run-up had made Bartel worth about $1.2 billion on paper.

In 2011, another stock price run-up approached the same highs.

But more recently Travelzoo has struggled. Since 2004, Bartel has sold off 7.3 million shares worth at least $100 million.

As of a June 17 financial filing, Bartel owned 6 million shares, or 50.567 percent of all shares outstanding. Given Tuesday’s closing price of $14, Bartel’s paper value for his Travelzoo holdings was $84 million — a far cry from past glory.

Looking ahead, Travelzoo’s stock is unlikely to surge again anytime soon. Most experts believe the recent years of a U.S. stock market surge has less strength ahead of it than behind it.

So if Bartel wants one more big payday out of his cash cow, a sale to another buyer may be the key. Bartel turns 53 years old this year. Two decades of involvement with Travelzoo, with 425 employees worldwide, may have begun to bore him a little.

The Asian Fixation

Investors might wonder what Bartel plans next. Asia is an apparent interest. Bartel wants to fix the company’s under-performing Asia unit. Less obviously, he also may want to find a buyer of the company in Asia.

Bartel may have nowhere else besides Asia to turn for a big payday.

If Bartel wants an exit via acquisition, he’s unlikely to find it among North American or European companies. After 21 years, these companies have lots of familiarity with Travelzoo at all of the company’s different valuations. If any of the major players were going to buy it, they would have done so by now.

Bartel logically may think he’ll find an acquirer in Asia that’s less familiar with Travelzoo and that needs a speedier entry into selling Western travel inventory.

Hiring With an Asian Theme

Bartel is Travelzoo’s chief talent officer, and he has been hiring a lot lately with an eye toward the East.

In May 2017 Bartel recruited Liqun Liu to the company’s board. Liu, also known as Carrie, had been the executive director of the billion-dollar fund Fosun China Momentum in Shanghai since July 2011. During her time at Fosun Group, Liu worked on Fosun investments in Club Med and British tour operator Thomas Cook.

Liu was formerly an investment banker in the investment arm of China Renaissance Group. Coincidentally China Renaissance Group was a financial advisor for Meituan and Dianping’s merger. Meituan-Dianping is an e-commerce platform with a major share of China’s online market in domestic hotel booking.

In May, Scott Wang, a Chinese national, became Travelzoo’s head of strategy for Asia Pacific, a newly created role, and general manager of Greater China. A few of Travelzoo’s 87 employees departed since then, the company disclosed on Wednesday. Wang intends to seek partnerships with regional travel and media players.

One year ago, Travelzoo appointed Sharry Sun as global head of brand, a new position. Sun, a Chinese national based in Tokyo, previously served as a portfolio management executive at Bain Capital Asia.

One of Sun’s big moves came in December when she helped get Travelzoo named “best travel deals provider” at the Pinchain Chinese Travel Awards 2018. Chinese online tourism consultancy and trade news publisher Pinchain ran the awards and may continue to help raise Travelzoo’s profile within China.

A Changed Strategy on Asia

Travelzoo hasn’t made many valuable friends in travel’s China industry yet. Getting introduced to the right people may be priority number one.

In 2007 it opened an office in Hong Kong and built a small business that it spun off for $3.6 million in mid-2009. A key driver behind the spinoff was that U.S. tax law offered no tax benefit from Asia losses, given that those are in separate tax jurisdictions. So the losses would have dragged down the apparent value of Travelzoo as a whole.

For years the Asia Pacific business struggled.

In 2015 the Bartel changed his mind. Building up Asia was worth a medium-term hit to Travelzoo’s share price, he decided.

Bartel had Travelzoo reacquire the Asia Pacific operations from himself, via the Azzurro Capital vehicle he solely owns, for $22.6 million.

Since then, Asia has continued to be a money-losing division.

Good Money After Bad?

Bartel’s bet on Asia is clear from Travelzoo’s second-quarter, which the company reported on Wednesday.

During the quarter, its development business in Asia Pacific saw a decrease in revenue of 23 percent year-over-year, to $1.6 million.

Meanwhile, North America and Europe generated an operating profit of $4.2 million.

During the quarter, the company took $1.8 million of that operating profit, or 42 percent of it, and spent it in its Asia Pacific business, said chief financial officer Wayne Lee.

That investment in Asia Pacific was equal to the operating loss of $1.8 million in Asia Pacific in the second quarter.

Travelzoo didn’t have to spend more on its money-losing business in Asia. An alternative move would have been to shut down its Asia effort. It could then have instead invested in the company’s North American and European business — where every extra dollar of investment has recently produced more efficient returns. The investment in Asia also doesn’t receive favorable U.S. tax treatment as an investment in the U.S. operation would have.

Overall in its three months to June 30, Travelzoo generated revenue of $28.2 million from advertising revenues and commissions from bookings. The company produced a net income of $1.3 million.

By some short-term interpretations, Asia may be distracting management from pursuing a more distinct path to growth.

The company is not neglecting Europe or the Americas, to be sure. Management has worked to roll out new products, such as vacation rental inventory and new technology for packaging hotel and flight inventory. It has also worked on sourcing more “exclusive” hotels and packages to its members in Europe and North America.

“While it was positive to see revenue growth for most of 2018, we note that revenue growth was about flat in Q1 2019 again, same as Q4,” noted Edward Woo, senior research analyst at Ascendiant Capital Markets, in a report in April.

“The company provided positive guidance for revenue growth in 2019,” Woo said. ‘But execution is key to offset the recent several years of weak or declining financial performance.”

Since March, Travelzoo has engaged a top management consulting firm in China to conduct a strategic review of the Asia business.

This review will generate its first decision within four weeks, said CEO Holger Bartel on an earnings call with analysts Wednesday.

Ralph’s brother Holger has been CEO since January 2016. Holger previously was chairman of the board and, between October 2008 and June 2010, its CEO.

A Family Affair

Together Bartel and his brother Holger have kept ownership of Travelzoo in the family. Holger owned 550,000 shares as of May, according to a filing. The brothers have long kept a majority of shares between them.

Travelzoo’s largest institutional investor is hedge fund Osmium Partners, which owns nearly 5 percent of the stock with about 560,000 shares. Few other institutions have significant ownership.

“We are strongly committed to driving up shareholder value by implementing a successful strategy to achieve profitable growth in Asia Pacific faster,” said Holger Bartel on Wednesday. Holger promised to achieve positive operating margins by 2020.

Along the way, it seems fair to assume that the company’s executives may try to rub shoulders in Asia with some potential acquirers.

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Tags: earnings, online travel companies, Travelzoo

Photo credit: A view of Travelzoo's Toronto office. The U.S.-based company aims to find growth primarily in Asia-Pacific in the near-term. Travelzoo

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