Yelp’s (NYSE:YELP) results showed the effect of rapid expansion as revenue grew 65% in Q4, on a yearly basis to $41.2 million. It has been expanding aggressively in Europe in the past few months. Apart from launching in Poland and Turkey, Yelp also expanded its presence in Germany and U.K. by acquiring Qype. This led to rising costs as the company reported a net loss of $5.3 million in Q4. On a yearly basis, revenues grew to $137 million with a net loss of nearly $19 million.
The company also showed a robust 45% growth in cumulative reviews as it grew to more than 36 million with average unique monthly visitors growing by 31% to 86 million. Active local business accounts grew 68% y-o-y to approximately 40,000. The company also provided guidance for Q1 2013 and FY 2013, stating that net revenues will be in the range of $44 – $44.5 million with an adjusted EBITDA of $1.25-$1.5 million. For the full year, it expects net revenue to be in the range of $210 – $212 million and adjusted EBITDA is expected to be in the range of $20 – $22 million.
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Focus On Mobile Monetization As Yelp Expands Internationally
Yelp is focusing on leveraging its growing user base via its mobile app. It has nearly 9.2 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.
In Q4, the company launched local ads on its mobile app and nearly 25% of all local ads were shown on mobile devices. It also beefed up its local search business by partnering with Bing to show up on local business pages and with Mercedes and Lexus to be incorporated in their in-vehicle infotainment systems. Mobile penetration is high with almost 46% of all searches coming via mobile, and with the mobile app now running local ads, this is likely to become a major revenue driver for Yelp. 
Yelp’s Growing Costs A Matter Of Concern
Fast growing Internet companies like Yelp are bound to have increasing costs as they expand to capture market share, but with the entry of competitors like Facebook’s Graph Search, this may very quickly become a competitive market. While Graph Search in its current form may be limited in use, it can very quickly become a strong competitor to Yelp, as more users begin to use the service.
Yelp’s costs grew nearly 60% annually to $156.3 million, mainly due to expansion into new markets and development of the mobile platform. It is currently the undisputed leader for reviews, but the nature of the business is such that it has low barriers to entry and a brand like Facebook can easily gain market share. Hence, we will keep an eye out for this in future earnings.Notes: