Travelzoo Q4 FY2025 earnings call

• Leveraging global reach, trusted brand, and relationships with travel suppliers to negotiate Club Offers. • Investments in Club Members with quick payback, average acquisition cost for full paying Club Member varying by quarter. • Strategy fueling membership growth at 180% year-to-date, new Club Members half from legacy and half from new. • Main categories of revenues: advertising and commerce, membership fees. • Management focus on growing paying members, converting legacy members, retaining and growing advertising business, growing Jack's Flight Club's subscription revenue, and developing Travelzoo META. • First Travelzoo META experiences expected in Q2 2026, incorporated as a benefit of Club Membership. • Travelzoo members are affluent, active, open to new experiences. • Exclusive Club Offers in Q4 like Bali 5-star Jungle Spa Retreat, Costa Rica 5-star new resort, Portugal trip, etc. • Worldwide complimentary launch access in case of flight delays for travel enthusiasts.

Travelzoo's consolidated Q4 revenue was $22.5 million, up 9% from the prior year. In constant currencies, revenue was $22.1 million, up 7% from the prior year. Operating income decreased as they invested more in Club Members. Advertising and commerce revenue was $18.3 million for Q4 2025. Revenue from membership fees increased to $4.1 million, expected to account for about 25% of revenue. Operating profit on North America and Europe segments was lower, Jack's Flight Club segment remained flat. GAAP operating margin was 2% in Q4 2025. Non-GAAP operating profit was $0.9 million or 4% of revenue compared to $5.4 million in the prior year period.

• Expect Q1 2026 revenue growth to continue. • Continued revenue growth in subsequent quarters as membership fees recognized ratably. • Over time, expect profitability to increase as recurring membership fees recognized. • Might see attractive opportunities to increase marketing, expensing costs immediately. • Planning to increase member acquisition in 2026 as long as good return and quick payback maintained. • Recurring revenue from renewing members will improve EPS over time.

Q: Just a couple of questions on the revenues, particularly on the advertising and commerce, it decreased sequentially, and I was wondering if you can add some color on the reasons that, that was down. And then on membership fees, that increased only $0.5 million from the previous quarter, and that was a slowing of the cadence as well, which was 20% from the previous quarter. So just on the revenue trend. So if you could just add some color both on the membership fees as well as the advertising and commerce as well.

A: Yes, you are right. Revenue from advertising and commerce was a bit soft in Q4. So far, we see that softness to continue a bit more into Q1 as well. Really no specific reason that we can point out. We've been focused very much on membership and adding new members. And it's as I said, no -- really no specific reason I can point out why it was a little bit soft. And then membership fees, I think it's probably mostly a rounding issue the change from Q3 to -- Q2 to Q3, Q3 to Q4 was really not that substantial. We expect that to increase, that quarterly revenue increase. We expect that to increase in 2026 as we are looking to spend more on member acquisition this year than in 2025 as long as we can maintain and achieve the positive return and quick payback that Jeff was talking about.

Q: Your comments around profitability and marketing expense. So I think marketing expenses were up like 30% just full year. Do you kind of see that as like the peak level or like that you'd be able to leverage additional growth off of? Or do you kind of see that continuing to move higher? And I guess, can you maybe sort of like reconcile the comments on the payback with like the lower operating cash flow for basically each quarter in 2025 year-over-year.

A: As I mentioned, as long as we can maintain a good return and the quick payback that Jeff was talking about, we would increase member acquisition in 2026. So we are planning to increase it over 2025. And as we've now explained for a few quarters, that in the short term always impacts EPS. However, as we move throughout 2026, and we have now recurring revenue coming in for members that are renewing after the first year of membership. And for these members, we don't have to spend anything on member acquisition. They are simply renewing their membership. So that revenue will increase without expenses related to that. So that will, over time, improve EPS. But as we said, cautiously in the last few earnings statements, we do not know in advance what the opportunities for member acquisition are. If we really see good opportunities, we might spend very aggressively, and that will certainly impact EPS in the short term as it has in Q3 and Q4.

Q: Kind of just your comments around profitability and marketing expense. So I think marketing expenses were up like 30% just full year. Do you kind of see that as like the peak level or like that you'd be able to leverage additional growth off of? Or do you kind of see that continuing to move higher? And I guess, can you maybe sort of like reconcile the comments on the payback with like the lower operating cash flow for basically each quarter in 2025 year-over-year.

A: As I mentioned, as long as we can maintain a good return and the quick payback that Jeff was talking about, we would increase member acquisition in 2026. So we are planning to increase it over 2025. And as we've now explained for a few quarters, that in the short term always impacts EPS. However, as we move throughout 2026, and we have now recurring revenue coming in for members that are renewing after the first year of membership. And for these members, we don't have to spend anything on member acquisition. They are simply renewing their membership. So that revenue will increase without expenses related to that. So that will, over time, improve EPS. But as we said, cautiously in the last few earnings statements, we do not know in advance what the opportunities for member acquisition are. If we really see good opportunities, we might spend very aggressively, and that will certainly impact EPS in the short term as it has in Q3 and Q4.

Q: Holger, the slides early on mentioned the potential for additional advertising revenue from membership fees and -- or the membership revenues affecting potential advertising revenues from advertising, just curious as to where you think the member base -- the paid member base needs to be in order to reach a critical mass in terms of having an impact on that incremental advertising revenue.

A: Well, as we are adding new members, we are also -- this also allows us to increase or maintain our advertising rates. So that's -- I don't think there's a specific point where we can say it makes a huge -- it makes a big difference. So as we are growing, it allows us to also maintain and then improve our advertising business. But as I said, we are really looking to drive members' membership and the growth of members in 2026 more aggressively because that revenue, which currently is around $4 million, as you saw, that revenue is recurring, very stable revenue while advertising and commerce revenues are always a bit contingent on the situation of how many offers we can source, what these offers are, if they are good or very good and the appetite of our advertisers. So that's less controllable while membership revenue is recurring, stable, and that's why we decided 2 years ago to move to a model of a subscription, a paid subscription and created Travelzoo Club.

Q: Can you just discuss a little bit about the underlying trends that led to the lower cost of new customer acquisition in Q4. I know you've mentioned seeing -- or taking advantage of opportunities as they arise, maybe being a little more aggressive in some periods versus others. But can you just talk a little bit about the underlying trends between Q3 and Q4 that led to the lower cost per acquired member?

A: Sure. So I think it's a combination of factors. So hard to pinpoint exactly what drove the lower cost per acquisition. But in general, actually Q4, we tend to see more difficult cost per acquisitions with certain channels like META and Google, but we were able to manage that with kind of optimization that we made through the user experience. We had member days in Q4 that helped to drive the lower CPAs and we were kind of cautious with spending as efficiently as possible. So I think that resulted in a lower CPA in Q4 as compared to Q3.

Q: My question is, what are you seeing out there in terms of the industry travel outlook for this year 2026?

A: I think in travel, we see a little bit the same as what people are seeing in the U.S. economy that it's diverging on the one hand, luxury travel is absolutely booming. In fact, you might have also read that hotel rates at 5-star properties around the world have reached the highest ever and the increase from 2024 to 2025 was also quite strong. While on the other hand, lower-end travel, cheaper travel is more challenging. However, you saw from the demographic that our members are generally more on the upper end. They are higher income. They can spend. They have the money to stay at 5-star properties and maybe that's also what was the -- what was explaining a bit the softness in Q4 and now the softness in Q1 in advertising and commerce, it is challenging. It's a bit challenging right now to get really very aggressive offers from luxury properties. But I think that the supplier on these properties is increasing. There's many, many new hotels operating -- sorry, opening all around the globe and they need to fill their beds. We feel that, that will become better going forward. But that trend is similar to what I think we are seeing in the U.S. economy in general.

Q: Holger, the new annual fees for 2026 are $50 per member and it looks like. And so existing members, will they -- who are paying $40, do they now pay $50? Or does that apply -- the $50 applies to new members only?

A: Good catch, Theo. Yes, I was talking about $40 because we were speaking about Q4. In the U.S., we increased the membership fee to $50, correct. We did not increase it in other markets. We increased it on January 1, but then we gave existing members an opportunity to renew at the old rate of $40 before the end of January. But anyone who didn't take advantage of the opportunity has to pay the $50 now going forward, whether that's someone new to Travelzoo or whether that is anyone who is renewing their membership that expires after February 1.

Q: On the balance sheet, accounts receivable dropped. So it looks like your DSOs went up. Is that a happy coincidence? Or was there an active plan to try to bring receivables down?

A: I'm happy -- I was happy to see that our team is doing a better job collecting receivables. Jeff, do you have any more insight on that part of the balance sheet?

A: No, I would say that more aggressive outreach with our clients to ensure that we're getting paid on a timely basis is consistent with prior quarters. I think it was most likely a happy coincidence.