Yelp is Trying to Get Its House in Order

According to a recent BIA/Kelsey report, the local advertising market in the US is estimated to be worth $146.6 billion in 2016 and the industry is expected to grow to $168.9 billion by 2020, translating to an annualized growth rate of 3.6% over the five-year period from 2015 to 2020. The growth will be driven by digital media which is expected to grow from $38 million in 2015 to $66 million in 2020, recording a 12% annualized growth rate. During the same period, traditional media, which includes print advertising, is expected to shrink marginally from $103.3 million to $102.8 million.

Yelp’s Financials

Yelp’s (NYSE: YELP) third quarter revenues grew 30% over the year to $186.2 million, ahead of the market’s expectations of $182.92 million. EPS of $0.22 per share, was also significantly ahead of the market’s forecast earnings of $0.18 per share.

By segment, revenues from local advertising grew 41% to $163.6 million. Transactions revenues grew 33% to $15.9 million and other revenues increased 1% to $6.8 million.

In operating metrics, Yelp reported that cumulative reviews grew 29% over the year to 115 million. App unique devices grew 24% to 25 million and active local advertising business accounts grew 30% over the year to 135,000. Total transaction volume for Yelp, which includes completed transactions and bookings through its Eat24, Yelp Reservations, and Yelp Platform apps grew 39% over the year. During the quarter, 77 million monthly unique visitors came to Yelp using their desktop site while 72 million monthly unique users visited Yelp using the mobile app.

For the current year, Yelp forecast revenues of $709 million-$713 million, ahead of the market’s forecast of $707.6 million. It expects revenues of $191 million-$195 million for the quarter, against the Street’s estimates of $192 million.

Yelp’s New Services

Earlier in the year, Yelp had released a Request-a-Quote feature that allowed users to get a price estimate for services that they wanted to use. Since its launch, the service has seen strong adoption. During the quarter, consumer adoption of the feature grew by 20%. The service is also witnessing support from business owners as nearly 75% of requests were responded to within 24 hours of the request. The feature has helped improve engagement on the business owner app as well as business owner logins, which have more than doubled over the year.

Earlier last quarter, Yelp entered into a partnership with Pittsburgh-based Nowait. Nowait is a mobile platform with tie-ups with more than 4,000 casual dining restaurants across the country. Its app allows users to see the expected wait time at restaurants that do not accept reservations and also allows them to put their names on the waitlist without being present there. Once the table is ready, users get a text message to inform them. As part of the partnership, Yelp invested $8 million in Nowait and has integrated its app into Yelp’s platform to allow Yelp users to add themselves to restaurant waitlists. Yelp has also invested $8 million in the partnership.

Meanwhile, Yelp is also re-evaluating its spending priorities. During the quarter, it announced plans to wind down sales and marketing activities outside the US and Canada so that it can focus its selling efforts in the North America region only. While Yelp had been expanding its international presence, it hadn’t seen much benefits from there. For the year to date, Yelp saw a mere $5 million in revenues from the international markets compared with an investment of more than $10 million made in these regions during the period. The reduction will require Yelp to lay off 175 jobs in these locations, which translates to a severance cost of $2 million-$4 million during the coming quarters.

The market is relieved with Yelp’s focus on margins and customer engagement. The stock soared 10% on result announcement. It is currently trading at $38.29 with a market cap of $2.96 billion. It has recovered from the 52-week low of $14.53 it had fallen to in February this year. It had touched a 52-week high of $43.36 last month.

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