Yelp Inc (YELP)’s Fortunes Will Turn Around: Tripadvisor Inc (TRIP), Facebook Inc (FB)

3. Mobile Monetization

Yelp gets roughly 46% of total searches from mobile devices alone, from more than 9.4 million unique users. And just recently Yelp started monetizing its mobile user traffic by using mobile ads for local businesses. In fact, almost 25% of Yelp’s local ads are being placed on its mobile platform, as mobile users are a lot more engaged and are more likely to click on ads.

The company’s management expects that in the future a large number of searches will be conducted on mobile devices. Increased engagement by users will also lead to more location-based ads, as the location of the user can be used to show ads of businesses nearby. The leading social media platform, Facebook Inc (NASDAQ:FB), generated 11% of its total ad revenue on mobile, and also expects mobile to grow at a much faster pace than on desktops as well.

4. Brand Advertising Dollars

Yelp’s revenues are heavily reliant upon the advertising dollars it receives from local businesses. Revenues from local business made up roughly 80% of its total revenues in 2012, while revenues from brand advertising represented only 15%.

Brand advertising prompts big companies to spend a lot of dollars just to keep their consumers aware of their brands and to remind the consumers of their existence. For a vertical search company like Yelp, this represents a big revenue generation potential, as the primary intent of the advertiser is not to make an immediate sale but to stick with the consumer.

And the increased amounts of user traffic will ensure that brand advertisers with big budgets will start using Yelp as a medium, and also existing ones will allot more of their budgets to the company. This holds true for most web 2.0 companies–Facebook Inc (NASDAQ:FB)s display advertising revenues are increasing and will keep on rising mainly due to the large number of user traffic it receives every month.

The Takeaway

Yelp’s business of capturing word-of-mouth reviews from the masses for its business listings is getting a lot of user traffic. The platform’s ability to stimulate and engage users in a social media setting will make sure that users frequent the site and spend more time on the site. As users spend more time and contribute more reviews on Yelp, not only will it be able to earn more revenues from small businesses, but also from big brands.

The article Yelp’s Fortunes Will Turn Around originally appeared on Fool.com and is written by Ishfaque Faruk.

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