A Company Called TravelZoo
I don’t exactly remember whether it was 1997 or 1998. What I do recall is seeing a unique proposition from a startup company called TravelZoo. In exchange for signing up for their service, they would alot 3 shares of the company to you. For each additional person you signed up, you could get an additional share. I was traveling for leisure off and on, and so out of curiosity as to how good their travel deals were, I bought in.
Time passed. I contracted for a company that had an American Express travel agency on site. Not only did they help with my corporate needs, but would also assist in finding and booking air, hotel and car deals for my personal travles. I did not need the assistance of TravelZoo, and thus, unsubscribed from their mailing list.
November of 2003. I get some information about TravelZoo going public and needing to verify my information. They had done a 2 for 1 split, and I had a whopping 6 shares. I still had the same email address as I did in 1997, but my address had changed several times. I updated them and forgot about it.
In April of 2004, I got an annual report from this company. I was sure they were only worth $3 or $4 per share, and was pleasantly surprised to find them around 5 or 6 (as I recall). Then in June of 2004, I started to see some odd stories pop up about this company and the trading volumes associated. It seems that all of the investors who were like me were interested in snapping up more shares. But it seemed only around 4,000,000 shares were floating out there to be traded. Enter a classic supply & demand problem. The stock price had been drived up north of $20 a share. I immediately executed the paperwork needed to issue a stock certificate.
When the certificate arrived, I rushed to my broker’s office and deposited it. The next day, I sold for around $17 a share. Not a lot of money – but it was the best kind: Found Money.
Today, TravelZoo (Nasdaq:TZOO) is trading around $92 a share. It has been as high as $110. Am I sorry I got out? Nope. Fundamentally, this stock might be worth around $20 a share (I rationalized $9 a share based on the information I had last June). I tried to short sell the stock over the summer when it was trading in the $50-60 range. There were not enough shares outstanding to accomplish that feat.
This is a classic case of supply and demand outweighing the fundamentals. It reminds me a lot of the late 90’s when suddenly everyone had internet access and a brokerage account. People are investing in a company that, as far as I can tell, generates revenues from selling advertising on its website and in a weekly email newsletter that lists travel deals. It’s trading at 356 times earnings. Google (Nasdaq: GOOG) has some of the best and brightest programmers in its stable and is implementing innovative technology on the desktop and network. It is trading at $194.50, 233 times earnings.
What is wrong with this picture? And not to sound greedy, but when there are no option chains or shares to be sold short, how can I make money off of it?