Travelzoo 2007 Annual Report Download - page 60

Increasing average cost per subscriber is likely to result in 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 effect on operations is that greater absolute and relative marketing expenditure is
necessary to continue to grow the reach of our publications. However, it is possible that the factors driving
subscriber acquisition cost increases can be partially or completely offset by new or improved methods of
subscriber acquisition using techniques which are under evaluation.
Segment Information
We have presented the business segments in this Form 10-K based on our organizational structure as of
December 31, 2007.
North America
2007 2006 2005
Year Ended December 31,
(In thousands)
Net revenues . . ....................................... $73,232 $66,509 $50,161
Income from operations ................................. 28,959 31,337 16,000
Income from operations as a % of revenues .................. 40% 47% 32%
In North America, revenues increased 10% in the year ended December 31, 2007 compared to the same period
in 2006. The North America revenue growth was driven by the increase of advertising rates, addition of new clients,
increased spending from existing clients, and new product offerings and revenue streams.
North America revenues increased by 33% in the year ended December 31, 2006 compared to the same period
in 2005. The North America revenue growth was driven by the increase of advertising rates, addition of new clients
and increased spending from existing clients.
Income from operations for North America as a percentage of revenue in the year ended December 31, 2007
decreased by 7 percentage points compared to the same period in 2006. This was primarily due to a 5 percentage
point increase in sales and marketing expenses as a percentage of revenue in the year ended December 31, 2007
compared to the same period in 2006. Sales and marketing expenses for North America increased to $32.9 million in
the year ended December 31, 2007 compared to $26.4 million in the prior year. This $6.5 million increase was
primarily due to a $2.6 million increase in salary and employee related expenses, a $1.3 million increase in
advertising to acquire traffic to our Web sites, a $1.1 million increase in advertising to acquire new subscribers for
our e-mail products and a $899,000 increase in advertising for brand awareness campaigns. There was also a
1 percentage point increase in general and administrative expenses as a percentage of revenue in the year ended
December 31, 2007 compared to the prior year. General and administrative expenses for North America increased to
$9.6 million in the year ended December 31, 2007 compared to $7.8 million in the prior year. This $1.8 million
increase was primarily due to a $595,000 increase in legal and professional service expenses, a $391,000 increase in
rent and office expenses, a $373,000 increase in expenses for corporate functions, and a $302,000 increase in salary
and employee related expenses.
Income from operations for North America as a percentage of revenue in the year ended December 31, 2006
increased by 15 percentage points compared to the same period in 2005. This was primarily due to a 10 percentage
point decrease in sales and marketing expenses as a percentage of revenue in the year ended December 31, 2006
compared to the same period in 2005. Sales and marketing expenses for North America increased to $26.4 million in
the year ended December 31, 2006 compared to $24.7 million in the prior year. This $1.7 million increase was
primarily due to a $1.6 million increase in salary and employee related expenses. There was also a 5 percentage
point decrease in general and administrative expenses as a percentage of revenue in the year ended December 31,
2006 compared to the prior year. General and administrative expenses for North America decreased to $7.8 million
in the year ended December 31, 2006 compared to $8.5 million in the prior year. This $700,000 decrease was
primarily due to a $1.0 million decrease in expenses related to a program under which the Company makes cash
payments to people who establish that they were former stockholders of Travelzoo.com Corporation, and who failed
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