Travelzoo 2011 Annual Report Download - page 36

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• payments which we may make to previous stockholders of Travelzoo.com Corporation who failed to submit requests for
shares in Travelzoo Inc. within the required time period, or escheat claims related to shares not issued in the Company’s
merger with Travelzoo.com Corporation; and
• volatility of our operating results in new markets.
We may significantly increase our operating expenses related to advertising campaigns for Travelzoo for a certain period if we
see a unique opportunity for a brand marketing campaign, if we find it necessary to respond to increased brand marketing by a
competitor, or if we decide to accelerate our acquisition of new subscribers.
If revenues fall below our expectations in any quarter and we are unable to quickly reduce our operating expenses in response,
our operating results would be lower than expected and our stock price may fall.
Our expansion of our product offering to include Local Deals format may result in additional costs that exceed revenue and
may trigger additional stock volatility.
During the third quarter of 2010, we launched our Local Deals format of advertising, under which we sell vouchers directly to
consumers to advertise promotional deals provided by merchants. For example, a consumer could buy a voucher for $99 for a dinner
for two at a merchant’s restaurant that would normally be valued at $199, representing a promotional value of $100 to the consumer.
This format involves several aspects that are new to us, and will require investments to maintain and grow the business including
additional sales force hiring, building a customer service organization, marketing, technology tracking systems and payment
processing. This format, introduced to the market in recent years, has resulted in many competitors entering the marketplace, thereby
creating a very competitive marketplace. This competitive landscape along with the required investments to start, maintain and grow
this format create a risk that our costs may exceed our revenues in the short and long term, which may materially impact our results of
operation and financial condition. Operating this format may introduce additional volatility to our stock price due to the performance
of this format by the Company and/or the overall market valuations that are being determined by the market for companies operating
this format of advertising.
Our business model may not be adaptable to a changing market.
Our current revenue model depends on advertising fees paid primarily by travel, entertainment and local companies. If current
advertisers decide not to continue advertising their offers with us and we are unable to replace them with new advertisers, our business
may be adversely affected. To be successful, we must provide online marketing solutions that achieve broad market acceptance by
travel, entertainment and local companies. In addition, we must attract sufficient Internet users with attractive demographic
characteristics to our products. It is possible that we will be required to further adapt our business model in response to changes in the
online advertising market or if our current business model is not successful. If we are not able to anticipate changes in the online
advertising market or if our business model is not successful, our business could be materially adversely affected.
If we fail to retain existing advertisers or add new advertisers, our revenue and business will be harmed.
We depend on our ability to attract and retain advertisers (hotels, spas, restaurants, vacation packagers, airlines, etc.) that are
prepared to offer products or services on compelling terms to our subscribers. We do not have long-term arrangements to guarantee
the availability of deals that offer attractive quality, value and variety to consumers or favorable payment terms to us. We must
continue to attract and retain advertisers in order to increase revenue and maintain profitability. If new advertisers do not find our
marketing and promotional services effective, or if existing advertisers do not believe that utilizing our products provides them with a
long-term increase in customers, revenue or profit, they may stop making offers through our marketplace. In addition, we may
experience attrition in our advertisers in the ordinary course of business resulting from several factors, including losses to competitors
and advertiser closures or bankruptcies. If we are unable to attract new advertisers in numbers sufficient to grow our business, or if too
many advertisers are unwilling to offer products or services with compelling terms to our subscribers or offer favorable payment terms
to us, we may sell less advertising, and our operating results will be adversely affected.
Our existing advertisers may shift from one advertising service to another, which may adversely affect our revenue.
Existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals and Getaways). These
shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods
depending on the amount purchased by the advertisers, and in particular with Local Deals and Getaways, depending on how many
vouchers are purchased by subscribers.
An increase in our refund rates related to our Local Deals and Getaways could reduce our liquidity and profitability.
We provide refunds related to our Local Deals and Getaways voucher sales. As we increase our revenue, our refund rates may
exceed our historical levels. A downturn in general economic conditions may also increase our refund rates. An increase in our refund
rates could significantly reduce our liquidity and profitability.