Yelp’s Growth Increasingly Relies On Its Success With Mobile Ads

YELP: Yelp logo

Quick Take

  • Yelp is expanding its local ads business; however, it needs to grow its brand ads revenues by monetizing its mobile platform. It has started offering display ads on its mobile platform recently.
  • Mobile ads spend will increase to $24.5 billion globally by 2016, and represent 29% of the total online ad spend in the U.S. by 2018.
  • Mobile display ads revenues can increase Yelp’s brand ads revenues by 4.5% in 2013, and will be a key growth driver going forward.

Yelp (NYSE:YELP) is one of the biggest local business listing directory in the U.S., and is fast becoming a de facto search engine for users who wish to make informed decision about availing services from businesses in their neighborhood. Although Yelp has been successful in expanding its local ads business by inorganic and organic route, it still needs to monetize its properties more effectively to increase its overall revenues. While Yelp has been using display ads to monetize its websites, it is in the process of monetizing its mobile platform for revenues. In this article we explore the mobile ads opportunity and how Yelp can monetize its mobile platform through display ads.

Relevant Articles
  1. Down 13% This Year, What’s Happening With Yelp Stock?
  2. Yelp Stock Up 66% Since 2023. Does It Have More Room To Run Post Q4 Results?
  3. What To Expect From Yelp’s Q3 After Stock Up 50% This Year?
  4. Yelp Stock is Up 60% So Far. What’s Next?
  5. Yelp Stock Down 14% Over Six Months. What’s Next?
  6. Yelp Stock To Likely Trade Lower Post Q4

Check out our complete analysis of Yelp

Mobile Ads – Opportunities Galore

According to the Internet advertising Bureau (IAB), Internet advertising experienced a double-digit growth in 2012, for a record $37 billion in revenues. [1] Mobile ads led this growth as revenues grew by 9% to $3.4 billion in 2012. Research firm Forrester predicts that ad spend on smart mobile devices (SMDs) will represent 29% of the total online ad spend in the U.S. by 2018. Additionally, Gartner has predicted that worldwide mobile ad revenue will exceed $11 billion in 2013, and that the growth rate for ad revenue will exceed 400% during 2011-2016. ((Gartner Worldwide Mobile Advertising Revenue, January 17 2013,

The drivers behind this explosive growth in mobile ads spend are:

  1. Increase in smart device ownership: While the smartphone installed base increased by 35%, the tablet installed base increased by over 120% in 2012. IDC has predicted that SMDs will capture 83% of the connected devices segment by 2017. [2]
  2. Higher web traffic from SMDs: Although tablets represents less than 30% of smart mobile devices, they represent over 40% of total mobile page views. Additionally, mobile devices are logging in higher web traffic than traditional PCs, resulting in higher Internet page views. ((Tablets trump smartphones in global website traffic, March 6 2013,
  3. Increased display area on devices to improve ad spend: Smartphone screen sizes are increasing and a tablet’s screen space for display ads is more than double than that of smartphones. Going ahead, we expect that users with bigger screen will consume more display and video content on these devices. Thus, we expect that ad budget for mobile devices will increase and this will further translate into convergence in revenue per impression (RPM) on mobile devices and PCs.

Mobile Monetization Is Key For Yelp’s Growth

With rapid growth in mobile advertising revenues due to higher penetration and use of SMDs by consumers and the use of more personalized and location-based advertising by mobile advertisers, Yelp can monetize its mobile platform as it has one of the largest listings of local ads. Yelp’s brand ads division is the second largest division and makes up ~11% of Yelp’s estimated value.

Over the past year this division has grown at a robust rate of over 16% from $17 million in FY11 to $21 million in FY12. One of the key contributors to this growth is the adoption of Yelps’ mobile platform and its mobile app. Yelp reported that 30% of its 102 million unique visitors (~10 million monthly unique mobile users) used its mobile devices for accessing its services in Q1FY13.

We currently project that Yelp’s monthly unique visitor will increase from 86 million in 2012 to over 120 million by the end of 2013. Assuming that 30% of unique visitors are mobile users, we have accounted for $8 million in search ads revenue from mobile in FY13.

Yelp reported that 36% of its ads impressions were served on mobile devices in Q1 FY13, and its mobile penetration is on the rise as almost 45% of all Yelp’s searches were via mobile. With the mobile app now running display ads, this is likely to become a major revenue driver for Yelp’s brand ads division. Yelp can monetize its mobile platform using display ads as 36 million (30% of expected FY13 unique visitors) monthly unique users can generate 2.19 billion page views based on a conservative estimate of 300 page views per month per user. These 2.19 billion page views could generate at least $3.4 million in revenues for Yelp in 2013, if it can charge the current display ads rate of $1.50 per thousand impressions (RPM) to advertisers. However there could be meaningful upside to our forecast if Yelp is able to charge higher ad rates for mobile users, the number of page views per month is higher or if more users visit the site than we currently anticipate.

We currently have a $19 Trefis price estimate for Yelp, which stands nearly 35% below its market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. IAB: Mobile Ads Captured 9% Of Online Ad Spend In 2012, April 16 2013, []
  2. Worldwide Smart Connected Device Market Crossed 1 Billion Shipments in 2012, March 26 2013, []