Travelzoo 2010 Annual Report Download - page 40

Our operations could be significantly hindered by the occurrence of a natural disaster or other
catastrophic event.
Our operations are susceptible to outages due to fire, floods, power loss, telecommunications failures,
unexpected technical problems in the systems that power our websites and distribute our e-mail newsletters,
break-ins and similar events. In addition, a significant portion of our network infrastructure is located in Northern
California, an area susceptible to earthquakes. We do not have multiple site capacity in the event of any such
occurrence. Outages could cause significant interruptions of our service. In addition, despite our implementation of
network security measures, our servers are vulnerable to computer viruses, physical and electronic break-ins, and
similar disruptions from unauthorized tampering with our computer systems. We do not carry business interruption
insurance to compensate us for losses that may occur as a result of any of these events.
Technological or other assaults on our service could harm our business.
We are vulnerable to coordinated attempts to overload our systems with data, which could result in denial or
reduction of service to some or all of our users for a period of time. We have experienced denial of service attacks in
the past, and may experience such attempts in the future. Any such event could reduce our revenue and harm our
operating results and financial condition. We do not carry business interruption insurance to compensate us for
losses that may occur as a result of any of these events.
We are subject to payments-related risks
We accept payments for the sale of vouchers using a variety of methods, including credit cards and debit cards.
We pay interchange and other fees, which may increase over time and raise our operating expenses and lower
profitability. We rely on third parties to provide payment processing services, including the processing of credit
cards and debit cards, and it could disrupt our business if these companies become unwilling or unable to provide
these services to us. We are also subject to payment card association operating rules, certification requirements and
rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible
for us to comply. Moreover, under payment card rules and our contracts with our card processors, if there is a
security breach of payment card information that we store, we could be liable to the payment card issuing banks for
their cost of issuing new cards and related expenses. If we fail to comply with these rules or requirements, we may
be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments, process
electronic funds transfers, or facilitate other types of online payments, and our business and results of operations
could be adversely affected. If one or more of these agreements are terminated and we are unable to replace them on
similar terms, or at all, it could adversely affect our results of operations.
Risks Related to Our Markets and Strategy
Our international expansion has resulted in substantial operating losses, and is subject to other material
risks.
In May 2005, we began operations in the U.K. In 2006 we began operations in Canada, Germany and Spain. In
2007, we began operations in France.
Although our revenues in Europe increased 54% in the twelve months ended December 31, 2010 from the
same period last year, our operations in Europe incurred losses of $1.8 million during the 2010 fiscal year, primarily
as a result of significant expenses related to subscriber acquisition and the launch of Fly.com. We intend to continue
adding a significant number of subscribers in selected countries in which we operate as we believe this is one of the
factors that will allow us to increase our advertising rates and increase our revenues in Europe.
The losses from our operations in Europe may not have any recognizable tax benefit. We expect this will have a
material negative impact on our net income and cash flows. Any of these developments could result in a significant
decrease in the trading price of our common stock. In addition to uncertainty about our ability to generate net
income from our foreign operations and expand our international market position, there are certain risks inherent in
doing business internationally, including:
• trade barriers and changes in trade regulations;
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