Travelzoo Q2 FY2025 earnings call

Jeff mentioned consolidated revenue details, operating profit change due to member growth investment, and explained marketing expense impact on EPS. Holger stated leveraging global reach and brand to negotiate Club Offers for members, and shared info on Travelzoo Club membership. Christina updated on Travelzoo META production being browser-enabled and Jack's Flight Club revenue growth driven by premium subscriber growth and membership fee increase.

Travelzoo's consolidated Q2 revenue was $23.9 million, up 13% from the prior year. In constant currencies, it was $23.5 million, up 12% from the prior year. Operating profit was $2.1 million or 9% of revenue, down from $4 million in the prior year. Advertising and commerce revenue was $20.9 million in Q2 '25, and membership fees revenue increased to $3 million, expected to account for about 25% of revenue next year. Jack's Flight Club revenue increased by 33%, and the number of premium subscribers increased 15%.

For Q3 2025, expect year-over-year revenue growth to continue and accelerate in subsequent quarters as membership fees are recognized ratably over 12 months. Over time, profitability to substantially increase as recurring membership fees are recognized. Short term, possible fluctuations in net income, and might see attractive marketing opportunities.

Actual results could differ materially from forward-looking statements. Travel industry demand changes could affect Offer prices and acquisition. Limited data on member retention rates starting from early 2026.

Q: I'm trying to understand a little more clearly the dynamics of the profitability going forward. And I'm thinking about this Slide 7 here with the net impact in the quarter being a loss of $0.13. So when you talk about the profitability improving over time, does that mean that the acquisition costs go lower or the revenue goes higher or both of those things are occurring?

A: Theodore, Slide 7 looks at one specific quarter. In Q2, we had membership acquisition expenses. In quarters going forward, will continue to generate revenue from acquired members but not have expenses for that cohort. In Q3, Q4 will sign up new members with new acquisition costs but benefit from revenue from past acquired members. Coupled with revenue from past members, driving overall profitability going forward.

Q: You stated that you invested in acquiring subscribers. And while I see the marketing expenses went up, it seems like the cost of revenues also went up significantly. I was wondering if you can address the cost of revenues in the quarter?

A: Sure, Michael. We had opportunities to purchase distressed inventory from suppliers at highly discounted price to create strong Club Offers, which are important to members. These expenses were put into cost of revenue.

Q: Are you essentially saying that you would limit how much you are willing to pay on SAC to that annual membership fee? And then just in terms of like the benefits for the members, if we think of maybe a growth contribution for the membership fee, I guess how should we maybe think about how that nets out versus some of the benefits, obviously, excluding the benefit of being able to access and purchase the deals that you present to them?

A: So Pat, if effectiveness and ROI of member acquisition limits activity. As long as payback is positive, no reason not to invest. Cash perspective: acquisition cost paid to channels, member fee comes in right away. Members value different benefits, #1 is love for new travel places, others appreciate benefits like free lounge access.

Q: What are you seeing out in the travel industry in the U.S. as well as in Europe in terms of is it -- you said it was a little bit soft. Have you noticed any -- is it getting worse? Has it stabilized?

A: Ed, not much difference between North America and Europe. Prices for flights and hotels are coming down indicating lower demand. This allows to develop strong offers by taking advantage of travel industry evolution.