Yelp (NYSE:YELP) will announce its earnings for Q4 2012 on February 6. The company announced its Q3 results in November and reported a solid 63% jump in net revenues y-o-y, with revenues coming in at $36.4 million. Cumulative reviews grew 49% y-o-y to more than 33 million, with average unique monthly visitors growing by 37% to 84 million.
The company derives a major portion of its revenue from local advertising and brand advertising and also dabbles in auxiliary services like deals, reservations and bookings for additional revenue. During the earnings call, we will look closely at how its international expansion plans are faring. We’ll also look at how mobile usage continues to grow, and may account for a significant portion of Yelp’s revenue, going forward given its recent momentum following partnerships with Apple and Bing.
We highlight some key trends driving its business below.
Expanding Worldwide Presence
Yelp has been quite aggressively pursuing its international ambitions. In the last couple of months, it started operations in Poland, Denmark, Norway, Finland and other European markets. It also entered the Asian market with a Singapore launch in 2012. We expect it to continue to move into additional new markets, which should lead to a significant increase in its local advertising revenues. We expect active paying local businesses to reach 100,000 by the end of our forecast period. The expansion will also help Yelp attract more eyeballs from new markets, drive page views and brand advertising revenue.
Mobile Monetization Key As Yelp Expands Internationally
Yelp is focusing on leveraging its growing user base via its mobile app. It has nearly 8.2 million monthly unique mobile users and has integrated its services into Siri and the new Apple Maps application on iOS 6. Yelp is “rapidly becoming a de facto search engine” as users prefer Yelp over other search options, when it comes to reviews.
Mobile penetration is high with almost 45% of all searches occurring on mobile and 50% of photos contributed by users are also from mobile phones. Currently it does not run any ads on its mobile app, and we can expect significant revenues from the mobile app in the future as it finds ways to monetize it. Yelp does show ads on its mobile web page, which has been redesigned to be mobile-centric. Yelp currently operates in ~90 cities, with Q3 witnessing launches in new markets including international markets such as Singapore and Poland.
Yelp’s Open Model Is An Edge Facebook May Never Have
With its current features, the Graph Search by Facebook (NASDAQ:FB) is really no match for online recommendations provider Yelp (NYSE:YELP), but it can potentially disrupt its business in the long run. Using Graph Search, a Facebook users can make queries about their friends’ locations and interests, to generate a much smaller pool of recommendations, compared to the hundreds posted on Yelp. Facebook users can ask for restaurants their friends visited recently and see reviews, but considering the fact that each user has only a limited number of friends, this query is likely to generate very few answers.
The biggest disadvantage for Facebook’s Graph Search is that it is governed by privacy rules and not all users may be willing to reveal their activities, which significantly reduces its information potential. The search query is also restricted to mining data from friends and open profiles on Facebook, and this is a much smaller pool compared to Yelp. Yelp’s biggest advantage is the fact that these reviews and recommendations are voluntary, and open for any user to read. Even professional restaurant critics tend to provide feedback on Yelp, and these recommendations are more likely to be taken seriously than what Graph Search is likely to provide.
We currently have a $15 Trefis price estimate for Yelp, which stands nearly 30% below its market price.