VALUATION HIGHLIGHTS

1. Local Advertising constitutes 86% of the Trefis price estimate for Yelp's stock.

WHAT HAS CHANGED?

1. Yelp Q2 Snapshot

In Q2, Yelp generated net revenue of $337 million, up 13% year over year (y-o-y), driven by an increase in average revenue per location. The company's ad clicks were flat y-o-y but its ad monetization saw improvement - meaning it made more per click. Its average cost per click was up 14% y-o-y. Moreover, its earnings per share (EPS) grew to 21 cents in Q2 2023 from 11 cents in Q2 2022. Its adjusted EBITDA also increased by 25% y-o-y to a record $84 million. Yelp has significant exposure to the restaurant industry, which explains the 14% growth in its second-quarter advertising revenue despite inflationary pressures throughout the period.

Note: Yelp's FY'22 ended on December 31, 2022. Q2 2023 refers to the quarter that ended on June 30, 2023.

2. 2023 Outlook

Yelp has guided 2023 full-year revenue to be in the range of $1.32 billion to $1.33 billion, reflecting a $20 million increase at the midpoint compared to its previous outlook. In addition, it also expects adjusted EBITDA in the range of $310 million to $320 million, an increase of $15 million at the midpoint compared to its previous outlook.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Local Advertising

• Yelp's Active Local Business Accounts: Yelp had over 545,000 active local business accounts in 2022. We currently forecast the number of active local business accounts to steadily increase, as it continues to expand aggressively, reaching around 1,060,000 by the end of our forecast period.

Yelp deals revenue

• Yelp's revenue from Yelp Deals, partnership and other services: Over the past few years, Yelp has sold Eat24 etc to GrubHub. As a result, its deals and partnership revenue declined from $75.2 million in 2017 to $37.3 million in 2019. In addition, the pandemic led these revenues to decline further to $36.8 million in 2020. However, this figure grew to $47 million in 2021 and further up to $59 million in 2022. We expect the division's revenues to grow to $78 million by the end of our forecast period.

Sales And Marketing Expenses

• S&M as a percentage of Revenue: We currently expect Yelp's selling and advertising expenses (S&M) to increase from around 40.3% in 2022 to 42.1% by the end of the forecast period. Given the increasing competition in the online business review and recommendations space, Yelp may have to incur increasing amounts of marketing expenses going forward.

BUSINESS SUMMARY

Yelp is a local business search, review, and recommendation service that allows consumers to access ratings and read reviews on local hotels, restaurants, salons, dentists, and mechanics on their website Yelp.com. These businesses are reviewed and rated by contributors.

Yelp currently has more than 240 million reviews of local businesses in the North American markets. The company currently offers information on more than 4 million businesses in the markets it operates in. It had around 97 million monthly unique visitors at the end of 2022.

Yelp generates revenue mainly from local business advertising, display advertising, and additional services like Yelp Deals, and deals with reservation services like OpenTable. It competes primarily with other online business reviews services like Google Places, Yahoo Local, Angi (formerly Angie's List), CityLocal, and Gumtree; display advertising players like Google, Yahoo, Facebook, and AOL; and daily deal sites like Groupon and LivingSocial.

SOURCES OF VALUE

Local Advertising is Yelp's most valuable business

Yelp is a local-business review platform, with 99% of 2022 revenue coming from the U.S. and 95% of total revenue generated through advertisements. Its local advertising platform leverages the power of inbound marketing, which leads to a higher customer conversion rate than traditional display advertising. We expect its local advertising revenue to grow in the coming years, as it expands into multiple international markets.

Huge repository of local business reviews and large user base

Yelp has the largest database of local businesses in the markets in which it operates, especially in the United States. It has more than 240 million user reviews of around 4 million local businesses. Due to its large repository of user-generated information, it attracts around 97 million monthly unique visitors every month, which makes it a very attractive advertising and marketing platform for local businesses, that are trying to attract new customers.

Proven expansion and market development strategy

Yelp has a proven market development strategy that it uses to expand into new markets in the United States. While it has exited the international markets, it plans to expand its services aggressively in the untapped U.S. markets.

Large community and network effects

Yelp has one of the largest communities of active contributors, who write detailed reviews about local businesses. Its large repository of reviews attracts around 97 million unique visitors every month, which makes it the perfect advertising platform for local businesses looking to gain new customers. This, in turn, helps Yelp generate increasing amounts of revenue from local and display advertising, as well as offerings like Yelp Deals and hotel reservations.