Strong numbers across the board
Yelp Inc (NYSE:YELP)’s growth story continues as the company grew its top-line revenues 68% year-over-year and ended Q1 2013 with $46.1 million. The company has been getting healthy levels of user traffic and grew average monthly unique users 43% on a year-over-year basis and now boasts of 102.1 million visitors. And these visitors are contributing a lot of reviews as well. The company’s total reviews surpassed the 39 million mark, which marks a 42% growth from a year ago.
However, Yelp’s cumulative review base of 39 million is still only a fraction of Tripadvisor Inc (NASDAQ:TRIP)’s review database of more than 100 million consumer generated reviews. And Tripadvisor Inc (NASDAQ:TRIP) continues to bolster its assortment of travel offerings by acquiring two new platforms, and the combined viewership across Tripadvisor Inc (NASDAQ:TRIP)’s umbrella is more than 200 million visitors across its 20+ sites. And TripAdvisor gets a majority of its user eyeballs for the Hotel and resorts packages category which makes up almost 50% of its traffic.
Yelp Inc (NYSE:YELP)’s exposure to Hotel and restaurant traffic has been limited, as revenues from restaurants category made up only 16% of its local advertising revenue, which reduces competitive forces substantially.
And Yelp’s has been growing the number of paying businesses remarkably with total accounts finishing the quarter at ~45,000 which represents a 63% year-over-year growth. And total free business accounts on Yelp surpassed the 1.1 million mark.
Margin expansion
Yelp Inc (NYSE:YELP)’s management has prioritized the company’s mobile and international operations, and deliver more value for its main customer group, local businesses. And for FY2013 the company’s management raised guidance to $216-$218 million, which marks a year-over-year growth of 58%. The raised guidance by the company was probably one of the main reasons for the post-earnings surge in Yelp’s share price.
The most positive surrounding the company’s results has been around the company’s strong improvement in the bottom line, the company’s losses narrowed down to $4.8 million or ($0.08) per share, which is a solid improvement from its net loss of $9.8 million in Q1F’12. And the company’s EBITDA adjusted for stock compensation improved to $3.2 million for the quarter, which is a move in the right direction as well. And margins should expand even more as the company scales its operations across more regions.
Mobile leading the way
One of the main reasons why investors seemed overly upbeat about Yelp Inc (NYSE:YELP)’s results is the company’s user traffic and subsequent mobile usage. The company’s platform is accessed on a monthly basis by more than 10 million unique mobile devices. And 45% of total searches in the Q1 were done through mobile apps, and taking into account mobile web and apps, the total searches on mobile is in excess of 55%.
In Q1 2013, roughly 36% of Yelp’s ad impressions were delivered on mobile which is a strong increase from the previous quarter when 25% of ad impressions were served on mobile. Yelp is however, in different about the platform through which ads are placed, because the company sells its ads as a bundled subscription including desktop, mobile web and the app.
Higher search volumes on Yelp Inc (NYSE:YELP)’s app and the mobile web will lead to more delivery of ad impressions, thanks to secular trends. This reinforces the belief that Yelp is well poised to monetize its platform on smartphones and tablets, as the company launched display ads on mobile. And most importantly for Yelp, consumer usage of apps reduces the company’s dependence of getting traffic directly from its lead competitor, Google Inc (NASDAQ:GOOG).
However, Yelp still gets a more than 50% of online traffic from search engines on desktop and also on the mobile site, with the lion’s share coming in from Google Inc (NASDAQ:GOOG). This hasn’t impacted the company, but might pose a stronger threat down the road. As Google has started showing reviews, photos, ratings of local businesses using Google Inc (NASDAQ:GOOG) Maps and Zagat on the right hand side when a user searches for the name of a business. Google is motivated to carve-out a stronger footing in local businesses because it can earn a lot more revenue from search advertising by placing more information directly from its search engine, instead of allowing those eye-balls to go to competing platforms like Yelp, TripAdvisor etc.
Creating Value
Consumers are increasingly using the company’s platform for reaching to businesses through phone-calls and directions, which are relatively stronger leads just like the ones OpenTable Inc (NASDAQ:OPEN) provides with its reservation services. Yelp has started selling ads in European markets, with some countries gaining strong users traffic. Yelp Inc (NYSE:YELP)’s operations have now expanded in 21 countries. And the company’s integrations with Qype will give the company more scale and incremental monetization opportunities. Yelp generated only 6% of its revenues from International markets, and going forward, this segment can expected to make much more.
Small businesses claiming their business account saw an annual revenue lift of $8,000, whereas businesses that advertise on Yelp saw a revenue lift of $23,000, according to a study by BCG. Typical businesses spend ~$4,000 a year to advertise on Yelp, which represents a solid ROI for the local advertisers, according to BCG. In addition, Yelp is also increasing its measurement techniques to help small and local businesses to understand the value of advertising on Yelp.
Positive territory
Yelp’s business model of crowd sourced reviews enables the company to earn gross margins of 93%, but as the company is investing in the build-out of its operations in domestic and international expenses, the company’s bottom-line numbers are in the red. However, once the business is more established and its sales and marketing expenses trickle down substantially, the company’s operating margins should expand dramatically.
The article Can Yelp’s Growth Story Continue? originally appeared on Fool.com and is written by Ishfaque Faruk.
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