Travelzoo 2010 Annual Report Download - page 55

an $862,000 increase in depreciation, amortization and maintenance costs, and a $355,000 increase in payments
made to third-party partners of the Travelzoo Network.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary expenses
associated with sales, marketing, and production staff, expenses related to our participation in industry conferences,
and public relations expenses. Sales and marketing expenses increased to $54.5 million for the year ended
December 31, 2010 from $49.7 million for the year ended December 31, 2009. The $4.7 million increase in sales
and marketing expenses for the year ended December 31, 2010 compared to the year ended December 31, 2009 was
primarily due to a $2.3 million increase in salary and employee related expenses due in part to an increase in
headcount, a $2.1 million increase in marketing expenses for Fly.com, an $833,000 increase in trade and other
marketing expenses, and a $563,000 increase in advertising to acquire traffic to our websites. These increases were
offset by a $1.5 million decrease in advertising to acquire new subscribers for our e-mail products.
Sales and marketing expenses increased to $49.7 million for the year ended December 31, 2009 from
$43.3 million for the year ended December 31, 2008. The $6.4 million increase in sales and marketing expenses for
the year ended December 31, 2009 compared to the year ended December 31, 2008 was primarily due to a
$2.4 million increase in salary and employee related expenses, a $2.6 million increase in advertising to acquire new
subscribers for our e-mail products, a $2.1 million increase in marketing expenses for Fly.com, and an $876,000
increase in advertising to acquire traffic to our websites offset by a $1.0 million decrease in brand marketing
expenses and a $373,000 decrease in trade and other marketing expenses.
The goal of our advertising campaigns is to acquire new subscribers for our e-mail products, increase the traffic
to our websites, and increase brand awareness for Travelzoo and Fly.com. For the years ended December 31, 2010,
2009, and 2008, advertising expenses accounted for 58%, 61%, and 59% respectively, of sales and marketing
expenses. Advertising activities during these three year periods consisted primarily of online advertising.
Our goal is to increase our revenues from advertising sales. One important factor that drives our revenues is our
advertising rates. We believe that we can increase our advertising rates only if the reach of our publications
increases. In order to increase the reach of our publications, we have to acquire a significant number of new
subscribers in every quarter and continue to promote our brand. One significant factor that impacts our advertising
expenses is the average cost per acquisition of a new subscriber. We believe that the average cost per acquisition
depends mainly on the advertising rates which we pay for media buys, our ability to manage our subscriber
acquisition efforts successfully, and the degree of competition in our industry.
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. The continuing build-up of our business in Europe is expected to result in a
relatively high level of sales and marketing expense in the foreseeable future.
General and Administrative
General and administrative expenses consist primarily of compensation for administrative, executive, and
software development staff, fees for professional services, rent, bad debt expense, amortization of intangible assets
and general office expense. General and administrative expenses increased to $27.6 million for the year ended
December 31, 2010 from $24.9 million for the year ended December 31, 2009. The $2.6 million increase in general
and administrative expenses was primarily due to a $757,000 increase in professional services expense, a $573,000
increase in rent, office and insurance expense, a $318,000 increase in salary and employee related expenses, a
$251,000 increase in bank and merchant account fees, and a $251,000 increase in depreciation and amortization
expense.
General and administrative expenses increased to $24.9 million for the year ended December 31, 2009 from
$21.4 million for the year ended December 31, 2008. The $3.6 million increase in general and administrative
expenses was primarily due to a $2.1 million increase in salary and employee related expenses, a $686,000 increase
in depreciation and amortization expense, and a $137,000 increase in professional services expense.
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