Travelzoo 2003 Annual Report Download - page 23

of common stock of Travelzoo Inc. As of December 31, 2003, 130,497 former stockholders of Travelzoo
Bahamas have taken the steps necessary to receive their shares in Travelzoo Inc., and 15,294,033 shares of
common stock have been issued. If all former stockholders of Travelzoo Bahamas accept their shares in
Travelzoo Inc., an additional 4,131,114 shares of common stock will be issued. These shares are reported as
outstanding shares in our Ñnancial statements.
In October 2003, the Company completed an underwritten secondary oÅering of 402,500 shares of
common stock sold by the Company's Chief Executive OÇcer and principal stockholder. The oÅering was
intended primarily to allow the Company to satisfy the requirement for listing on the NASDAQ SmallCap
Market that the Company have 300 round lot holders.
On December 30, 2003, Travelzoo became listed on the NASDAQ SmallCap Market under the symbol
""TZOO.''
Our Industry
According to the Newspaper Association of America, travel companies spent $1.3 billion in 2003 on
national advertising in newspapers (source: Market and Business Analysis, NAA, 2004). We believe that
newspapers are currently the main medium for travel companies to advertise their sales and specials.
We believe that several factors are causing and will continue to cause travel companies to increase their
spending on Internet advertising of sales and specials:
The Internet Is Consumers' Preferred Information Source. Market research shows that the Internet has
become consumers' preferred information source for travel (source: Forrester Research, 2002).
BeneÑts of Internet Advertising vs. Print Advertising. Internet advertising provides travel companies
advantages compared to print advertising. These advantages include real-time listings, real-time updates, and
performance tracking. See ""Ì BeneÑts to Travel Companies.''
New Advertising Opportunities. The Internet allows travel companies to advertise their sales and
specials in a fast, Öexible, and cost-eÅective manner that has not been possible before.
Suppliers Selling Directly. We believe that many travel suppliers prefer to sell directly to consumers
through suppliers' websites versus selling through travel agents. Internet advertising attracts consumers to
suppliers' websites.
Problems Travel Companies Face and Limitations of Newspaper Advertising
We believe that travel companies often face the challenge of being able to eÅectively market and sell
excess inventory (i.e. airline seats, hotel rooms, or cruise cabins that are likely to be unÑlled). The success of
marketing excess inventory can have a substantial impact on a travel company's net income. Almost all costs
of travel services are Ñxed. That is, the costs do not vary with sales. A relatively small amount of unsold
inventory can have a signiÑcant impact on the proÑtability of a travel company.
Our management believes that travel companies need a fast, Öexible, and cost-eÅective solution for
marketing excess inventory. The solution must be fast, because travel services are a quickly expiring
commodity. The period between the time when a company realizes that there is excess inventory and the time
when the value of the travel service has become worthless is very short. The solution must be Öexible, because
the travel industry is dynamic and the demand for excess inventory is diÇcult to forecast. It is diÇcult for
travel companies to price excess inventory. It is diÇcult for travel companies to forecast the marketing eÅort
needed to sell excess inventory. The marketing must be cost-eÅective because excess inventory is often sold at
highly discounted prices, which lowers margins.
Our management believes that newspaper advertising, with respect to advertising excess inventory, suÅers
from a number of limitations which do not apply to the Internet:
‚ typically, ads must be submitted 2 to 5 days prior to the publication date, which makes it diÇcult to
advertise last-minute inventory;
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