Yelp (NYSE:YELP) is one of the largest online local business search, review and recommendation service, which enables consumers to access ratings, and read reviews and opinions about local businesses like hotels, restaurants, salons, dentists and mechanics on their website. It competes primarily with other online business review services like Google (NASDAQ:GOOG) Places, Yahoo (NASDAQ:YHOO) Local, Angie’s List, CityLocal and Gumtree; display advertising players like Google, Yahoo, Facebook and AOL (NYSE:AOL); and daily-deal sites like Groupon (NASDAQ:GRPN) and LivingSocial. Yelp generates revenue through local advertising, display or brand advertising and other services like Yelp Deals, its own daily deals offering. It also generates some revenue from partners like OpenTable (NASDAQ:OPEN) and Orbitz by facilitating restaurant, hotel and airline ticket reservations through its platform.
We currently have a $9.30 Trefis price estimate for Yelp. Yelp Deals, Reservations and Other Services is its second most valuable business after Local Advertising. It has been Yelp’s fastest growing business in the past two years, and we expect its revenue growth to continue going forward.
Yelp’s platform naturally lends itself to localized daily deal offerings
Yelp currently has the largest repository of local business information in almost all the markets it operates in. It also has a large user base actively searching for local businesses in their area, which makes them the ideal platform for daily deals by local merchants. Yelp Deals enables local business owners to create promotional discounted deals for their offerings and market it to customers using its platform, and earns a fee based on the price and quantity of deals sold through its platform.
As the daily deal market expands in the coming years, we expect Yelp to become a suitable alternative to Groupon and LivingSocial for small businesses looking for a self-serve option to manage their own deals, resulting in increasing amounts of revenue from Yelp Deals. Yelp’s large intent-driven customer base should drive a significant daily deal volume in the coming years.
Revenue from reservation partners expected to increase
A majority of the businesses reviewed on Yelp are hotels and restaurants. Yelp has partnerships with reservation services like OpenTable and Orbitz through which it generates additional revenue by allowing its user base to book hotel reservations and airline tickets directly from its platform. As more users start using Yelp to discover new hotels, restaurants and other businesses, and make reservations directly from Yelp’s platform, we expect it to generate increasing amounts of revenue from reservation partnerships.