Yelp Global Expansion Spree Continues, Mobile and Deals Show Growth

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Trefis
YELP: Yelp logo
YELP
Yelp

Yelp (NYSE:YELP) reported its earnings for Q1 2012, its first post-IPO quarter, on May 02. Its revenue grew to $27.4 million, up 66% year-over-year, and it also demonstrated strong growth in other important user metrics like unique visitors, active business accounts and reviews. However, its operating losses more than tripled in the last quarter, primarily due to a rise in marketing expenses and its focus on rapid expansion.

Yelp 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.

Check out our complete analysis of Yelp

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Yelp continues to expand internationally

Yelp charged forward with its international expansion spree, expanding into 11 new markets like Antwerp, Brussels, Oklahoma City, Perth and Hampton Beach in Q1 2012. It is now present in 82 markets worldwide, with more than 27 million reviews of local businesses.

It also saw its base of active local business accounts grow to 27,300 by March 2012. Yelp also added a set of new dashboard metrics for business owners. We expect the average number of active local business accounts to reach 29,000 in 2012 and around 92,000 by 2018. You can check out the impact of any increase or decrease in Yelp’s active local business accounts on its local advertising business and its overall value using this chart:

Mobile usage growing rapidly

Yelp continued to see a rise in usage on mobile devices. Its mobile apps were used by 6.3 million monthly unique devices last quarter, which is up from 5.7 million in the quarter before. Going forward, the increased mobile usage could help it generate additional revenue from locally targeted deals, mobile reservations as well as mobile advertising and recommendations. Given the rapidly increasing smartphone penetration worldwide, we expect most of Yelp’s usage growth to come from mobile devices and tablets, instead of desktops and notebooks. Yelp could generate a significant portion of its overall ad revenue from mobile devices going forward.

Yelp Deals and other partnerships could rake in good money

Yelp has a lot of auxiliary offerings, which tie in nicely with its core business to generate additional revenue. Yelp Deals were offered by more than 25,000 businesses in the first quarter. While it is a relatively small business for Yelp, it could potentially become one of its most profitable businesses, and displace advertising as Yelp’s primary revenue engine. We expect revenue from deals and other partnerships to increase steadily in the coming years.

However, despite Yelp’s growth story, we cannot justify such a high valuation for Yelp. Here’s why: Why Yelp is Only Worth $10

We currently have a $10 Trefis price estimate for Yelp, which stands nearly 50% below its market price.

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