Travelzoo 2013 Annual Report Download - page 68

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Our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an
attractive audience to reach with our advertising publications. We monitor our subscribers and page views of our websites to
assess our efforts to maintain and grow our audience reach. We obtain additional subscribers and activity on our websites by
acquiring traffic from Internet search companies. The costs to grow our audience have had, and we expect will continue to
have, a significant impact on our financial results and can vary from period to period. We may have to increase our
expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition. We continue
to see a shift in the audience to accessing our services through mobile devices and social media. We are addressing this growing
channel of our audience through development of our mobile applications and through marketing on social media channels.
However, we will need to keep pace with technological change and this trend to further address the shift in audience behavior
in order to offset any related declines in revenue.
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. If we are able to increase the reach of our publications, we still may
not be able to or want to increase rates given market conditions such as intense competition in our industry. We have not had
any significant rate increase in recent years due to intense competition in our industry. Even if we increase our rates, based
upon the increased price this may reduce the amount of advertisers willing to advertise for the increased rates and therefore
decrease our revenue.
We do not know what our cost of revenues as a percentage of revenues will be in future periods. Our cost of revenues will
increase if the number of searches performed on Fly.com increases because we pay a fee based on the number of searches
performed on Fly.com. Our cost of revenues may increase if the face value of vouchers that we sell for Local Deals and
Getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of
vouchers sold, due to customer service costs related to vouchers sold and due to subscriber refunds on vouchers sold. We
expect fluctuations in 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. In addition, there may be a significant number of subscribers that cancel their subscription for
various reasons, which may drive us to spend more on subscriber acquisition in order to replace the lost subscribers. Further,
we expect to continue our strategy over time 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 in 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 have increased and may continue to increase our spending on sales and marketing
to increase the number of our subscribers and address the growing audience from mobile and social media channels, as well as
to increase our analytic capabilities to continuously improve the presentation of our offerings to our audience.