Travelzoo 2012 Annual Report Download - page 92

Europe revenues increased $14.7 million in 2011 compared to 2010. This increase was due to growth of Travel, Search and Local
revenues. The increase in Travel revenue of $5.6 million was primarily due to the introduction of Getaway , increase in Top 20 and Newsflash
revenue from the increased number of emails delivered to our audience driven by advertiser demand and relatively stable average cost-per-email
offset by some decrease due to increased competition and the economic uncertainty in Europe. The increase in Search revenue of $2.7 million
was primarily due to the increased number of clicks that generate revenue as a result of increased spending on traffic acquisition as well as
higher average cost-per-click paid by our advertisers. The increase in Local revenue of $6.3 million was primarily due to the launch of our Local
Deals
in late 2010.
For the years ended December 31, 2012, 2011 and 2010, none of our customers accounted for 10% or more of our revenue.
Foreign currency movements relative to the U.S. dollar negatively impacted our revenues from our operations in Europe by approximately
$1.4 million, $1.7 million and $703,000 for years ended December 31, 2012, 2011 and 2010, respectively.
Cost of Revenues
Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and 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 website development costs, credit card fees, certain estimated subscriber refunds and customer service costs
associated with vouchers we sell, and salary expenses associated with network operations and customer service staff. Cost of revenues was $15.7
million, $13.3 million and $7.3 million for the years ended December 31, 2012, 2011 and 2010 , respectively.
Cost of revenue increased $2.5 million in 2012 compared to 2011. This increase was primarily due to an increase of $657,000 in payments
made to third-party partners of the Travelzoo Network, an increase in Local Deals and Getaway costs including a $643,000 in credit card fees
and a $521,000 increase in salary and employee related expenses due primarily to an increase in customer service headcount.
Cost of revenue increased $6.1 million in 2011 compared to 2010. This increase was primarily due to an increase in Local Deals and
Getaway
costs including $2.0 million in credit card fees, $1.6 million in subscriber refunds and $1.2 million of customer service and professional
services costs. In addition, there was an increase of $625,000 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
were $68.2 million, $65.5 million and $54.5 million for 2012, 2011 and 2010, respectively. Advertising expenses accounted for 41%, 49% and
58%, respectively, of total sales and marketing expenses and consisted primarily of online advertising which we refer to as traffic acquisition
cost and subscriber acquisition costs. The goal of our advertising was to acquire new subscribers for our e-mail products, increase the traffic to
our websites, and increase brand awareness.
Sales and marketing expenses increased $2.7 million in 2012 compared to 2011. The increase was primarily due to a $6.3 million increase
in salary and employee related expenses due primarily to an increase in headcount, a $1.0 million increase in Search traffic acquisition costs,
offset by a $2.0 million dollar decrease in television advertising expense and a $2.6 million decrease in subscriber acquisition costs.
Sales and marketing expenses increased $11.0 million in 2011 compared to 2010. This increase was primarily due to a $10.2 million
increase in salary and employee related expenses due in part to an increase in headcount, a $2.0 million dollar increase in television brand
advertising expense, a $1.3 million increase in Search traffic acquisition costs, offset by a $2.8 million decrease in subscriber acquisition costs.
Despite reduced subscriber acquisition spending, we believe we continued to add new subscribers due to factors such as our website requiring
visitors to subscribe to view most deals and the traffic associated with the introduction of Local Deals and Getaway .
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