May 3, 2011

Sign up for email + wait 13 years = Make $652 from Travelzoo

Remember the wild west of the Internet tech boom?   Remember how any company with .com in their name could IPO and make themselves instant gazillionaires even thought they hadn't made a single cent of revenue much less profit?   OK maybe I'm exaggerating a little but it really did seem like the Internet boom was simply a crazed money grab with no sense of reality.  It was in that era that Internet related companies gave away lots of free promotional deals in order to get their company some publicity and customers.    Their promotions didn't really have to be cost effective as far as gaining actual business since the real goal was to get some buzz and increase the value of their IPO.  Plus companies seemed to be banking on future gains since everyone seemed to assume 200% annual growth for anything Internet related.

Free money!

I set that stage to tell you the story of how I came to make $652.70 off of Travelzoo stock.

Travelzoo is a company that sends out email newsletters about travel discounts and sales.  When Travelzoo first started business back in 1998 they had an innovative marketing strategy.    Travelzoo decided they would give you free shares of stock in their company as a promotional deal for signing up to get on their email list.  This old CNN article discusses the free stock giveaway.   Initially Travelzoo was private company and not publicly traded.  So the value of the stock at the time was debatable at that time.  Free stock?  Sounded like a good deal to me.  I signed up for the email and shared it with some friends.   I ended up getting 8 shares of Travelzoo stock for free with little effort.

Time went by and I pretty much forgot about my 8 shares of Travelzoo stock.  I was still on their email list for a while and then eventually I must have canceled the email subscription.  In the mean time Travelzoo went public in 2003 and has been traded as TZOO on the NASDAQ since then.   It IPO'd at $6.50 a share.   It had some ups and downs.  At one point in December 2005 the stock hit $110 a share.      It spent the next few years trading between $15 and $40.    In the midst of the recent recession the stock crashed down to under $4 at the start of 2009.

Have you heard of Groupon?   You probably have.  You may also know that its business is growing like gangbusters and the company is worth a ton of money.   Groupon is a Internet discount coupon kinda deal.   Why am I talking about Groupon all the sudden?    Well Travelzoo and Opentable are internet sign up kinda deals sort of vaguely like Groupon.   This vague relationship between Groupon and companies like Travelzoo and Opentable have caused the stocks of Travelzoo and Opentable to go up a lot lately because they are riding the coattails of Groupon.  At least that is my interpretation of what is going on.  People want to cash in on the Groupon bonanza and are looking for other ways to take advantage of what they think might be a trend in that category of businesses.

Travelzoo stock history, Source

Because of this Groupon effect that is pumping up interest in Travelzoo the share values of Travelzoo have climbed considerably lately.      I sat amazed recently watching the stock go up and up and up.  First it hit $40.... then $60... $70...   From October 2010 to April 2011 the stock tripled in value from $25 level to $75 range and it wasn't done yet.    So now my 8 shares of Travelzoo are worth several hundred dollars.

I decided it was time to cash out.  The problem with selling the shares however was that they were not in a brokerage account.  The shares were being held by Travelzoo themselves as custodian.  I couldn't just hit a 'sell' button.   In order to get those Travelzoo shares sold I had to do a few things.    Another complication on the matter was that Travelzoo had spelled my name wrong.   So first I had to fix that.   To fix my name  I had to print a form, have it notarized and then mail the form in.   Then I had to sit and wait for them to fix my name.   Thankfully that didn't take too long, I think they got it fixed within a couple weeks.  For the next step I had to request that they send me a physical stock certificate so I could transfer the shares to my brokerage account at Scottrade.   That meant filling out another form and this time I had to get it signed and then get it "medallion signature guaranteed".   That medallion signature guarantee is similar to a notary but only done by banks and stock brokers.   I found out that our local bank branch in our grocery store does that thankfully.  So it wasn't too much of a task to get the medallion signature guarantee.  We just stopped in at the bank while doing grocery shopping one Saturday afternoon.   Then we mailed in that form and waited.   I think it took another couple weeks till we finally got the shares in the mail.   Last I had to go to the local Scottrade branch office and give them the certificate to deposit into my account.

While this was happening recently Travelzoo issued their Q1 report and after that on April 21st the stock rocketed up over $20 in just one day.   Crazy!   Unfortunately my shares had not yet arrived in the mail or I would have sold them that day or the day after.   My shares arrived around the weekend if I recall right.  I was a little busy so I didn't get around to depositing them right away.   In the meantime the stock was up even more and peaked over $103 on Monday April 25th.

Finally on Thursday I found time to drop by a local Scottrade office and handed them the paper certificate.  I signed the stock certificate on the back and they gave me a receipt.   They said it would show up in my account Friday by around Noon sometime.   By Noon time Friday the shares were in my account and I entered a sell order.

I sold the 8 shares at $83.34 for a total of $659.70.   The commission on Scottrade was $7 so my total profit was $652.70.  All for free.   I will of course have to pay long term capital gains taxes on the stock sale, but since I've owned the shares for over a year the tax rate is 15%.   After taxes I'll be left with $554.79.

All I had to do was :  Sign up for an email subscription and share the link with some friends.  Wait 13 years.   Fill out a form and have it notarized and mail it in.  Fill out another form and have it stamped with a signature medallion guarantee at the local bank office.   Make a trip to my brokerage office to give them my stock certificate.   And then finally issue a sell order to cash in my $652 of free money.

Side note:  The fact that Scottrade has convenient local offices is one very nice benefit of Scottrade that I like.   They have a local office just a few miles from my house where I can quickly stop by during business hours to do stuff like this rather than having to deal with it all online or via mail.

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