Travelzoo (NasdaqGS:TZOO)

Q3 2025 Earnings Review: Triple-Digit Member Growth with Short-Term Margin Impact

A Few Words from

Gilmour Investment Research

Gilmour covered the company in July (The Evolution of Travelzoo) and has been a valuable contact throughout our research. One particularly helpful resource shared was eDreams’ Investor Day deck, which demonstrates why transforming into a subscription business is not easily replicable.

Below, you’ll find Gilmour’s Q3 commentary, followed by our one-pager and updated expectations and model.

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TZOO’s Q3 2025 earnings release was met with a negative market reaction. While revenue grew 10% yoy and membership fees increased 20% sequentially, EPS collapsed to $0.01, and operating cash flow turned negative.

This performance reflects two primary causes:

1. Timing mismatch between customer acquisition costs and subscription revenue: Customer acquisition costs are expensed immediately, while subscription revenue is recognized over the subscription period. In Q3, direct member acquisition costs continued to rise.

2. Seasonal weakness in advertising: Q3 is generally TZOO’s softest quarter for advertising, with advertising and commerce revenue this year reaching $18.6M, ~$2M below the levels seen in the prior two quarters.

With that being said, there were also some bright spots in the quarter:

• TZOO continues to acquire paid memberships profitably from day one, with a $40 customer acquisition cost offset by a $40 membership fee, and additional revenue sources from transactions and advertising yet to be realized. Maintaining a CAC below $40 while expanding monetization will be key to driving future bottom-line growth.

• During the quarter, TZOO spent $2.9M on direct customer acquisition costs, implying a solid paid membership volume of ~72.5K. Using Q4 revenue from the Q3 cohort of $1M (annualized to $4M) and known revenue per paid customer of $55 ($40 membership + $15 transactional), the membership fee portion (72%) equates to $2.88M, consistent with the cost-derived figure.

• Additional positives include stable advertising revenue yoy, growing deferred revenue, and continued rapid share buybacks.

Q3 2025 earnings review of Travelzoo (TZOO): Add rating, price target roughly unchanged at $16.75.

TZOO reported Q3 results on Tuesday, reflecting the near-term volatility typical of companies in the early stages of a subscription model transition. The stock was hammered in what appears to be an overreaction to a largely anticipated scenario with mostly positive long-term implications.

Specifically, Q3 was expected to mark a bottoming quarter, characterized by elevated marketing spend and distressed inventory purchases. Indeed, direct member acquisition costs rose from already high levels, leading to a miss against improperly set expectations and triggering the resulting share price weakness.

In such situations, sizing up is almost always the theoretically correct move. Notably, several institutional contacts initiated or added to their positions right after earnings. While caution is warranted, adding to an unfairly punished name like TZOO is reasonable, at least for now.

Scroll down to download the report and model.