Weak Mobile Platform And Lowered Investments Have Negatively Impacted Travelzoo’s Search Business

by Trefis Team
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Travelzoo (NASDAQ:TZOO) is a global Internet media company. The company’s search division, which allows users to find best travel sites and flight prices, has been under-performing relative to the overall company. While total revenues have grown from $148 million in 2011 to $158 million in 2013, search revenues have declined from $29 million to $24 million during the same period. [1]

Travelzoo’s search products include SuperSearch, a pay-per-click travel search tool, and Fly.com, a travel search engine that allows users to find the best prices on flights from different airlines and online travel agencies (OTAs). The two brands do not have a strong presence on mobile, which is why the number of search queries on both the sites declined last year. The brands also faced the brunt of rising traffic acquisition costs and the need to balance spending, which forced Travelzoo to decrease investments into search.

Realizing that it lagged behind its competitors in innovating and adding search functionalities, Travelzoo has now brought two new executives on board to devise a future strategy for its search offerings. During the Q4 earnings call, Travelzoo announced that it will conduct a performance review of SuperSearch to evaluate all options including repositioning it, terminating it and merging it with Fly.com. The company will also focus on driving profitable growth. This could result in a revenue decline of about $1.5 million from SuperSearch in Q1 2014 compared to the year-ago period. [2]

Mobile Is The Primary Reason Behind The Decline In Number Of Search Queries

Consumers are increasingly shifting to mobile devices for searches. Fly.com completed the first full quarter of its mobile site in Q4 last year. It processed about 750,000 searches via its mobile site. [2] However, it does not have any mobile app. This led the average number of monthly searches on Fly to decline from 3.5 million in 2012 to 3.3 million in 2013. [1] [3]

The number of monthly searches on SuperSearch also plummeted from 5.1 million to 4.1 million contemporaneously since the brand does not have a mobile app 0r a mobile site. [3]

Investments In Building The New Hotel Booking Platform Has Also Impacted Search

Travelzoo is building a proprietary platform to offer hotel bookings on its own website and mobile products. The company has so far incurred $3.6 million on headcount and development costs related to the platform, and it expects to incur another $1.1 million in Q1 2014. The need to balance goals with investments has forced Travelzoo to reduce its spending on search marketing. The company spent $1.6 million less on search traffic acquisition in 2013 compared to the preceding year. [2] Travelzoo has stated that the hotel platform will be its key focus area in 2014, and thus, we think that it may not significantly increase its investments on search to bolster growth.

Trefis Conclusion: About 66% of Travelzoo’s revenues are generated in the U.S. Future growth in the U.S. search sector is expected to come from mobile. According to eMarketer, about 2% of the digital ad spending on search in 2010 occurred on mobile devices. This was expected to reach 22% last year, and eMarketer forecasts that the figure will cross the 50% mark by 2017. [4] In line with this trend, search engines are increasing their focus on mobile devices to attract traffic. We believe that Travelzoo needs to heavily invest in building mobile products and modernizing its search offerings. The company has $66 million in cash on its balance sheet with no debt. It could raise money through the debt channel to invest into mobile search.

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  1. Travelzoo Form 10-K 2013, www.sec.gov, February 2014 [] []
  2. Travelzoo’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, January 2014 [] [] []
  3. Travelzoo Form 10-K 2012, www.sec.gov, February 2013 [] []
  4. Mobile Gains Greater Share of Search, Display Spending, eMarketer, August 2013 []
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