Travelzoo 2009 Annual Report Download - page 52

We believe that we can increase our advertising rates only if the reach of our publications increases. We do not
know if we will be able to increase the reach of our publications. We believe that we can sell more advertising only if
the market for online advertising continues to grow and if we can maintain or increase our market share. We believe
that the market for online advertising continues to grow. We do not know if we will be able to maintain or increase
our market share. We have historically increased the number of clients in each year since inception. We do not know
if we will be able to increase the number of clients in the future. We do not know if we will have market acceptance
of our new products.
Our goal is to increase our advertising rates at least once a year in each market, preferably as of January 1 of
each year. However, we did not increase our advertising rates in the U.S. on January 1, 2008 and 2009 due to intense
competition in our industry. We intend to review advertising rates and consider increases once a year as of January 1.
However, there is no assurance that there will be increases of advertising rates. Depending on the level of
competition in the industry and the condition of the online advertising market, we may decide not to increase our
advertising rates in all or certain markets.
Average revenue per employee decreased to $487,000 for the year ended December 31, 2009 from $496,000
for the year ended December 31, 2008 and our average revenue per employee decreased to $496,000 for the year
ended December 31, 2008 from $612,000 for the year ended December 31, 2007.
Cost of Revenues
Cost of revenues consists primarily of network expenses, including fees we pay for co-location services,
depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo
Network, fees we pay related to user searches on Fly.com, amortization of capitalized Web site development costs,
and salary expenses associated with network operations staff. Our cost of revenues increased to $5.6 million for the
year ended December 31, 2009 from $2.8 million for the year ended December 31, 2008. As a percentage of
revenue, cost of revenues was 6.0%, up from 3.5% for the year ended December 31, 2008. The $2.8 million increase
in cost of revenues for the year ended December 31, 2009 compared to the year ended December 31, 2008 was
primarily due to a $1.5 million increase in fees we paid related to user searches on Fly.com, 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. Our cost of revenues increased to $2.8 million for the year ended December 31,
2008 from $957,000 for the year ended December 31, 2007. As a percentage of revenue, cost of revenues was 3.5%,
up from 1.2% for the year ended December 31, 2007. The $1.9 million increase in cost of revenues for the year
ended December 31, 2008 compared to the year ended December 31, 2007 was primarily due to a $990,000 increase
in payments made to affiliate partners of the Travelzoo Network and a $302,000 increase in salary expense.
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 $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 Web sites offset by a $1.0 million decrease
in brand marketing expenses and a $373,000 decrease in trade and other marketing expenses.
Sales and marketing expenses for the year ended December 31, 2008 increased to $43.3 million from
$40.5 million for the year ended December 31, 2007. The $2.8 million increase in sales and marketing expense for
the year ended December 31, 2008 compared to the year ended December 31, 2007 was primarily due to a
$3.1 million increase in salary and employee expenses and a $936,000 increase in trade and other marketing
expenses offset by a $1.2 million decrease in brand marketing expenses.
27