Yelp Earnings Preview: International Expansion And Mobile Ads In Focus

by Trefis Team
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Yelp (NYSE:YELP) is set to release its Q2 2013 earnings on July 31. The company announced its Q1 2013 results in May and reported a solid 68% y-o-y jump in net revenues to $46.13 million. Cumulative reviews grew 42% y-o-y to more than 39 million with average unique monthly visitors growing by 43% to 102 million. Active local business accounts grew 63% y-o-y, to approximately 45,000.

The company derives a major portion of its revenue from local advertising and brand advertising, and it also dabbles in auxiliary services like deals, reservations and bookings for additional revenue. During upcoming earnings call, we’ll look at how mobile usage continues to grow. Moreover, Yelp continues to expand outside of the U.S., and we will be on the lookout for any key takeaways regarding this expansion process. In a move to diversify its revenue stream, Yelp has expanded its deal services by introducing delivery platform to its portfolio. In this earnings announcement, we want to know any new strategy that Yelp plans to implement to bolster its revenues from deal and partnership services.

Check out our complete analysis of Yelp


International Expansion To Bolster Revenues

Yelp has been quite aggressively pursuing its international ambitions. During Q2 2013, Yelp expanded its services in central Europe with the launch of its website for Czech Republic. We expect Yelp to continue to move into additional new markets, which should lead to a significant increase in its local advertising revenues.

In Q1, active local business accounts grew 63% y-o-y, to approximately 45,000. We expect this trend to continue in Q2 as well, and are closely watching this metrics in the upcoming earnings announcement. However, as Yelp looks to expand internationally, the average revenue per active local business will decline because local businesses in these geographies tend to spend less on ads compared to their counter parts in the US. We expect average revenue per active business account for Yelp to decline from $2,860 in 2012 to $2,490, by the end of our forecast period. However, international expansion will also help Yelp attract more eyeballs from new markets, drive page views and brand advertising revenue.

Mobile Ads Revenue In Focus

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 launched display ads for its mobile platform in Q1.

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.

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. In this earnings announcement, we want to know the revenue generated through mobile display ads. Additionally, Yelp had over 10 million monthly unique mobile users in Q1. We expect that Yelp will continue to report growth in monthly mobile users in Q2, and are closely following this number in the upcoming earnings announcement.

Strategy For Deal, Partnership And Other Services (DPO) Division

In a move to diversify its revenue stream, Yelp has expanded its services by introducing delivery platform to its portfolio. [2] Yelp plans to expand these services to encompass other categories such as spas, yoga studios, salons and dentist appointments going ahead. Yelp’s deal, partnership and other services (DPO) division contribute only 6% to total revenues. If these delivery services gain traction amongst Yelp users, Yelp’s DPO division can be an important growth driver going forward. In this earnings announcement, the focus will be on Yelp’s strategy for the DPO division and its plans to introduce new services for this division.

We currently have a $19 Trefis price estimate for Yelp, which is nearly 50% below its current market price.

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Notes:
  1. IAB: Mobile Ads Captured 9% Of Online Ad Spend In 2012, April 16 2013, www.adexchanger.com []
  2. See Yelp Can Cook Up More Growth With Local Delivery Services []
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  • commented 9 months ago
  • tags: OPEN YELP GOOG
  • Good for Yelp for embracing mobile advertising as early as they did... when you do mobile ads right, $$$ usually follows, Good article on this from Pando Daily - http://pandodaily.com/2013/07/01/how-airpush-bootstrapped-its-mobile-ad-network-to-150m-in-revenue/