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Yelp Looks to Be Integrated into Cars

Posted on Thursday, May 31st 2012

Online review site (NYSE:YELP) recently reported their first ever quarter results as a publicly traded company. Although the company’s revenues may have grown beyond market expectations, they are coming in at significantly higher costs. The company continues to bleed and fails to deliver on a strong monetization plan.

Yelp’s Financials
Q1 revenues grew 66% over the year to $27.4 million. By segment, local advertising contributed $21.4 million revenues, while brand advertising brought in $4 million. Other services accounted for the remaining $1.9 million in revenues. The market had targeted revenues of $25.3 million.

During the quarter, losses grew nearly three times to $9.8 million from $2.7 million reported a year ago. The market was projecting a loss of $0.30 per share compared with the loss of $0.31 per share reported by Yelp. Their increasing losses are attributed to rising sales and marketing costs, administrative costs, and costs related to international expansion, and a business model that doesn’t monetize sufficiently well despite heavy use among its loyal users.

The site’s use continues to grow, and the average numbers of monthly unique visitors grew 53% to 71.4 million and reviews grew 59% to 27.6 million. Mobile efforts are also delivering results as the company reported 6.3 million unique devices per month compared with 5.7 million last quarter. Active local business accounts grew 117% to 27,300. However, the mobile app is free, and unless a premium app is put in place, the company will continue not to monetize adequately.

For the current fiscal year, Yelp is looking at revenues of $128 million-$132 million with a break-even or marginally positive EBITDA. They expect to end the current quarter with revenues of $29 million-$31 million and a loss of $0.50 million-$0.80 million. The market was projecting current quarter revenues at $29 million and annual revenues at $124.4 million.

Yelp’s Market Expansion
Over the last quarter, Yelp has focused on growing their international footprint. They added 11 new markets last quarter, of which eight were international locations. At the end of the quarter, they were present in 82 markets. Recently, Yelp announced their presence in Norway and Denmark. They launched their website, and free iPhone and Android apps in Norway, along with their business owner tools. Yelp is now present in Canada, the UK, Ireland, France, Germany, Austria, the Netherlands, Spain, Italy, Switzerland, Belgium, Australia, Sweden, Denmark, and Norway.

Besides market presence, Yelp is also working on expanding user engagement. Recently, they released a new feature that lets users comment on the Yelp platform. Unlike the more public reviews, the new feature lets users leave private reviews or tips for their friends based for the locations that the friends have checked in at.

Last quarter, Yelp also entered into agreements with Mercedes and Lexus to integrate Yelp into these companies’ in-vehicle infotainment systems. The move will help Yelp become available to more “consumers on the go.” Last year, Yelp entered into a similar agreement with BMW. The domain of hands-free driving apps is promising, and one could envision premium (paid) speech-enabled driving apps from Yelp for mobile phones, as well as significant licensing fees from car makers.

Despite these efforts, Yelp’s stock is trading at $16.61 with a market capitalization of $1.02 billion. The stock may be trading higher than the $15 it had listed at, but it still only about half of the $31.96 it had touched at the end of last quarter. I believe that Yelp may continue to amass more users and reviews through market expansion, but it still needs a more robust monetization plan to be able to maintain its valuation. As it stands, the market is getting concerned about Internet companies with large traffic and unmonetized eyeballs.


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