Travelzoo 2012 Annual Report Download - page 88

of cost of revenues as a percentage of revenues from quarter to quarter. Some of the fluctuations may be significant and have a material impact
on our results of operations.
We do not know what our sales and marketing expenses as a percentage of revenue will be in future periods. Increased competition in our
industry may require us to increase advertising for our brand and for our products. 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. Increases in the average cost of acquiring new subscribers may
result in an increase of sales and marketing expenses as a percentage of revenue. 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. We may decide to accelerate our subscriber acquisition for various strategic and tactical reasons and, as a result,
increase our marketing expenses. We may see a unique opportunity for a brand marketing campaign that will result in an increase of marketing
expenses. Further, we expect our strategy to replicate our business model in selected foreign markets to result in a significant increase in our
sales and marketing expenses and have a material adverse impact on our results of operations. Due to the continued desire to grow our business
both in the North America and Europe we expect relatively high level of sales and marketing expenses in the foreseeable future. We expect
fluctuations of sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter. Some of the fluctuations
may be significant and have a material impact on our results of operations. We expect increased marketing expense to spur continued growth in
subscribers and revenue in future periods; however, we cannot be assured of this due to the many factors that impact our growth in subscribers
and revenue. We expect to adjust the level of such incremental spending during any given quarter based upon market conditions as well as our
performance in each quarter.
We do not know what our general and administrative expenses as a percentage of revenue will be in future periods. There may be
fluctuations that have a material impact on our results of operations. We expect our headcount to continue to increase in the future. The
Company’s headcount is one of the main drivers of general and administrative expenses. Therefore, we expect our absolute general and
administrative expenses to continue to increase. We expect our continued expansion into foreign markets and development of new advertising
formats to result in a significant additional increase in our general and administrative expenses. Our general and administrative expenses as a
percentage of revenue may also fluctuate depending on the number of requests received related to a program under which the Company intends
to make cash payments to people who establish that they were former stockholders of Travelzoo.com Corporation, and who failed to submit
requests to convert shares into Travelzoo Inc. within the required time period. We expect an increase in legal and professional fees due primarily
to our defense of legal proceedings and claims and compliance efforts. In addition, we expect to incur additional costs related to the development
of our hotel booking platform capabilities.
We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact on our results of
operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, federal and state and foreign
country tax law and regulations and changes thereto, the amount of accumulated net operating loss we have to offset current taxable income, the
determination of whether valuation allowances for certain tax assets are required or not, including our valuation allowance on our European loss
carryforwards, audits of prior years' tax returns resulting in adjustments, resolution of uncertain tax positions and different treatment for certain
items for tax versus books such as the disposition of our Asia business in 2009 or our State of Delaware settlement during 2011. We expect
fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material
impact on our results of operations.
The key elements of our growth strategy include building strong brand awareness, increasing reach, maintaining a high-quality user base,
increasing the number of advertisers, providing advertisers with excellent service and replicating our business model in foreign markets, as well
as developing new products that keep pace with changes in consumer preferences and technology, such as the trend toward mobile usage by
consumers. We expect to continue our efforts to grow; however, we may not grow or we may experience slower growth. Some examples of our
efforts to expand our business internationally since our inception from the U.S. have been expansion to the U.K. in 2005, Canada in 2006,
Germany in 2006, France in 2007 and Spain in 2008. We also have launched new products to grow our revenue such as the introduction of
Fly.com
in 2009, Local Deals in 2010, Getaway
in 2011 as well as our mobile application launches in 2011 and 2012. We bought an online hotel
booking platform to serve hotels and to facilitate a hotel commission-based offering.
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 advertising continues to shift from offline to online. We do not know if we will be able to
maintain or increase our market share. We do not know if we will be able to increase the number of advertisers in the future. We do not know if
we will have market acceptance of our new products or whether the market will continue to accept our existing products.
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