Travelzoo 2004 Annual Report Download - page 44

‚Unsubscribes: Subscribers who were removed from our list throughout the quarter either as a result of
their requesting removal, or based on periodic list maintenance after we determined that the e-mail
address was likely no longer valid.
‚Balance: This is the number of subscribers at the end of the quarter, computed by taking the previous
quarter's subscriber balance, adding new subscribers during the current quarter, and subtracting
unsubscribes during the current quarter.
Average Cost per
Acquisition of a New
Period Subscriber New Subscribers Unsubscribes Balance
Q1 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $0.93 254,140 (24,547) 1,614,130
Q2 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $0.95 590,266 (156,204) 2,048,192
Q3 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.01 740,656 (51,566) 2,737,282
Q4 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.31 799,958 (55,064) 3,482,176
Q1 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.62 693,872 (213,423) 3,962,625
Q2 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.58 924,902 (172,403) 4,715,124
Q3 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.52 1,108,045 (248,964) 5,574,205
Q4 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2.17 869,286 (240,907) 6,202,584
Q1 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2.23 920,063 (185,151) 6,937,496
Q2 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2.58 858,899 (634,702) 7,161,693
Q3 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.26 1,298,962 (602,628) 7,858,027
Q4 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.70 694,026 (343,139) 8,145,737
We have noted a general trend of increasing cost per new subscriber over the last few years, driven by a
gradual increase in online advertising rates by our media suppliers as well as increased activity from
competitors using similar forms of online advertising for their own marketing eÅorts. The decline in new
subscriber acquisition costs in Q3 2004 and Q4 2004 reÖects the eÅect of new advertising campaigns which
were tested at that time. We do not consider the decline in new subscriber costs in Q3 2004 and Q4 2004 to be
necessarily indicative of a longer-term trend that our subscriber costs are likely to stay at this level or are likely
to decline further.
The operational impact of increased acquisition cost is higher absolute marketing expenses and
potentially higher relative marketing expenses as a percentage of revenue. Going forward we expect continued
upward pressure on online advertising rates and continued activity from competitors, which will likely increase
our cost per new subscriber over the long term. The eÅect on operations is that greater absolute and relative
marketing expenditure may be necessary to continue to grow the reach of our publications. It is possible that
the factors driving subscriber acquisition cost increases can be partially or completely oÅset by new or
improved methods of subscriber acquisition using techniques which are under evaluation. Thus we are not able
to meaningfully predict the short-term quarterly trend in the cost of acquiring new subscribers.
Income Taxes
For the year ended December 31, 2004, we recorded an income tax provision of $5.1 million. For the
years ended December 31, 2003 and 2002, we recorded income tax provisions of $1.7 million and $573,000,
respectively. Our income is generally taxed in the U.S. and our income tax provisions reÖect federal and state
statutory rates applicable to our levels of income. Our eÅective tax rate Öuctuated in years prior to 2004
because merger expenses and stock oÅering costs reported as expenses in the consolidated Ñnancial statements
were not deductible for tax purposes and thereby increased the eÅective tax rate for Ñnancial reporting
purposes in those periods. The eÅective tax rate increased in 2004 because the expenses related to the program
to make cash payments to former stockholders were treated as non tax deductible expenses for Ñnancial
statement reporting purposes. The eÅective tax rates for 2004, 2003, and 2002 were 46%, 45%, and 40%,
respectively. The eÅective tax rate in future periods will continue to Öuctuate depending on the timing and
amounts of expenses of payments to former stockholders.
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