Is the year-old Travelzoo voucher business in the form of Local Deals and Getaways cannibalizing its heretofore core Top 20 deals and travel-media business?
Chris Loughlin, Travelzoo's CEO, acknowledges that Travelzoo's business mix is changing and characterizes it as an "intentional" and "positive" shift.
Loughlin notes that Shirley Tafoya, the company's president of North America, and her team now handle the Getaways voucher business as well as the Top 20 newsletters.
"We''re thinking about it as a shift rather than a cannibalization," Loughlin told financial analysts today during the company's third quarter earnings call.
And, Glen Ceremony, Travelzoo CFO, points out that there is a tradeoff between the voucher-based Getaways business, which typically pairs a hotel stay with a spa or restaurant deal, often in driving distance from the subscriber, and the company's signature Top 20 travel deals.
Growth rate comparisons in the core publishing business were "tough" in the third quarter compared with the same period in 2010, Ceremony says.
And, all of this highlights the fact that the voucher phenomenon continues to alter the overall Travelzoo business, which is on a growth trajectory.
Travelzoo's revenue increased 40% year-over-year in the third quarter to $38.7 million, and net income climbed 62% to $5.9 million.
Part of the bottom line improvement can be tied to toned-down advertising spending, a slowing in headcount growth and productivity gains, officials say.
In a management presentation, Travelzoo outlined how the Local Deals business has increased its cost of revenue as a percentage of total revenue, but in the third quarter the company managed regardless to boost its operating margin as a percentage of revenue.
Travelzoo says it third quarter results produced record revenue, its quickest year-over-year revenue uptick in five years, and record operating income in Europe.
The Local Deals business has now been rolled out in 96 markets -- generally cities or metropolitan areas -- and now averages one deal per week, with the goal to reach two deals in each market per week.
Travelzoo's gross revenue per deal in the third quarter before paying merchants was $25,000, compared with $17,000 year-over-year, but it was down from $33,000 in the second quarter of 2011.
Loughlin says Travelzoo feels little impact from Groupon Getaways with Expedia.
"A rising tide lifts all boats," Loughlin says, adding that Travelzoo targets a higher-end, slightly older demographic.
He adds: "We want to be The Economist and Condé Nast Traveler and there is plenty of room for other magazines on the stand."