The cost of going global, Travelzoo posts yet another net loss quarter

April 29, 2008 | Online Travel

Travelzoo's aggressive expansion in Asia Pacific and Europe negatively impacts its operating income. The company's first quarter ended March 31, 2008, with revenue of $20.9 million, an increase of 6% year-over-year, and a net loss of $1.0 million.

Travelzoo Inc., a global Internet media company, today announced financial results for the first quarter ended March 31, 2008, with revenue of $20.9 million, an increase of 6% year-over-year. Net loss was $1.0 million with diluted loss per share of $(0.07), down from diluted earnings per share of $0.25 in the prior-year period.

�In Q1 2008, we continued our strategy of going global,� said Ralph Bartel, chairman and chief executive officer, Travelzoo. �As frequently announced in our investor communications over the last twelve months, our aggressive expansion in Asia Pacific and Europe negatively impacts our operating income.”

North America

North America business segment revenue grew 2% year-over-year to $18.9 million. North America reported operating income of $6.3 million, or 33.1% of revenue, down from operating income of $8.2 million, or 44.1% of revenue, in the prior-year period.

Europe

Europe business segment revenue grew 59% year-over-year to $2.0 million. Europe reported an operating loss of $2.2 million, compared to an operating loss of $683,000 in the prior-year period. The increase in operating loss was primarily attributable to increased spending on subscriber acquisition in France, Germany and the U.K. and increased expenses associated with the start up of our operations in France. Travelzoo began operations in the U.K. in May 2005, in Germany in September 2006, and in France in March 2007.

Asia Pacific

Asia Pacific business segment revenue was $20,000. Asia Pacific reported an operating loss of $2.7 million, compared to an operating loss of $2.1 million in the prior quarter. Travelzoo began operations in Hong Kong in April 2007, in Japan in September 2007, in China in October 2007 and in Australia and Taiwan in December 2007.

Income Taxes

Income tax expense was $2.6 million compared to $3.8 million in the prior-year period. Travelzoo�s effective income tax rate was 164.2%, up from 48.2% in the prior-year period. The effective tax rate was impacted by operating losses from our Asia Pacific business segment and Europe business segment. These operating losses were treated as having no recognizable tax benefit.

Asset Management

Travelzoo generated $3.6 million of cash from operating activities. Accounts receivable increased $870,000 sequentially and increased $1.6 million over the prior-year period to $10.8 million. Accounts payable increased $2.3 million sequentially and increased $3.0 million over the prior-year period to $7.2 million. Travelzoo exited the quarter with $24.4 million in cash and cash equivalents.