Travelzoo 2007 Annual Report Download - page 52

Our revenues are advertising revenues, consisting of listing fees paid primarily by travel companies to
advertise their offers on the Travelzoo Web sites, in the Travelzoo Top 20 e-mail newsletter, in the Newsflash e-mail
alert service, in SuperSearch, a pay-per-click travel search engine, and through the Travelzoo Network, a network of
third-party Web sites that list deals published by Travelzoo. Revenues are principally generated from the sale of
advertising in the U.S. Listing fees are based on placement, number of listings, number of impressions, or number of
clickthroughs. Smaller advertising agreements — typically $2,000 or less per month — typically renew automat-
ically each month if they are not terminated by the client. Larger agreements are typically related to advertising
campaigns and are not automatically renewed.
We have three operating segments based on geographic regions: North America, Europe, and Asia Pacific.
North America consists of our operations in Canada and the U.S. Europe consists of our operations in France,
Germany, Spain, and the U.K. Asia Pacific consists of our operations in Australia, China, Hong Kong, Japan, and
Taiwan. For the year ended December 31, 2007, our operations in Europe accounted for 7% of revenues and our
operations in Asia Pacific accounted for less than 1% of revenues.
When evaluating the financial condition and operating performance of the Company, management focuses on
the following financial and non-financial indicators:
• Growth of number of subscribers of the Company’s newsletters and page views of the homepages of the
Travelzoo Web sites;
• Operating margin;
• Growth in revenues in the absolute and relative to the growth in reach of the Company’s publications; and
• Revenue per employee as a measure of productivity.
Critical Accounting Policies
We believe that there are a number of accounting policies that are critical to understanding our historical and
future performance, as these policies affect the reported amounts of revenue and the more significant areas
involving management’s judgments and estimates. These significant accounting policies relate to revenue recog-
nition, the allowance for doubtful accounts, and liabilities to former stockholders. These policies, and our
procedures related to these policies, are described in detail below.
Revenue Recognition
We recognize revenue on arrangements in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104, “Revenue Recognition.” We recognize advertising revenues in the period in which the
advertisement is displayed, provided that evidence of an arrangement exists, the fees are fixed or determinable and
collection of the resulting receivable is reasonably assured. If fixed-fee advertising is displayed over a term greater
than one month, revenues are recognized ratably over the period as described below. The majority of insertion
orders have terms that begin and end in a quarterly reporting period. In the cases where at the end of a quarterly
reporting period the term of an insertion order is not complete, the Company recognizes revenue for the period by
pro-rating the total arrangement fee to revenue and deferred revenue based on a measure of proportionate
performance of its obligation under the insertion order. The Company measures proportionate performance by
the number of placements delivered and undelivered as of the reporting date. The Company uses prices stated on its
internal rate card for measuring the value of delivered and undelivered placements. Fees for variable-fee advertising
arrangements are recognized based on the number of impressions displayed or clicks delivered during the period.
Under these policies, no revenue is recognized unless persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed or determinable, and collection is deemed reasonably assured. The Company evaluates
each of these criteria as follows:
•Evidence of an arrangement. We consider an insertion order signed by the client or its agency to be
evidence of an arrangement.
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