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Time To Buy This Web 2.0 Company? Yelp Inc (YELP), Tripadvisor Inc (TRIP)

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Up and coming local search and review site, Yelp Inc (NYSE:YELP) continues to grow at a rapid rate. In 2012, the company’s top line revenues grew 65% year-over-year along with accelerated user growth. There have been a number of reasons to be skeptical about the Web 2.0 Company previously, but there are a few positives as well in Yelp’s strategy.

User eyeballs are growing but losses continue to mount. However, the company’s mobile monetization and international operations along with its brand name might drive the company’s fortunes higher.

Yelp Inc (NYSE:YELP)100 Million And Counting

A major bright spot for Yelp is the ever increasing number of monthly visitors on its growing platform. At the end of 2012, the Yelp boasted of 86 million unique visitors and at the end of January 2013, Yelp hit more than 100 million visitors. Engaged users are posting more and more reviews on the places they have visited, the cumulative reviews on the Yelp platform saw a stellar 45% year-over-year growth and ended 2012 with more than 36 million reviews.

Yelp’s brand recognition is increasingly becoming a key factor in enticing users to frequent the site and post more reviews. Yelp’s expanded footprint in Europe will aid in building that brand. In addition, Yelp’s subsidiary, Qype has ~15 million monthly visitors and helps the company to build out its footprint further in Europe.

Signing Up More Business Accounts and Partnerships

Some of Yelp’s content was integrated into Apple Inc. (NASDAQ:AAPL)’s Maps app on iOS 6. In addition, Yelp partnered with Bing to provide content for Bing’s Local Search portal, which is a positive for both the companies in the wake of increasing competition from Google Inc (NASDAQ:GOOG) search and Google+ Local. Also, Yelp has been incorporated by some vehicle infotainment systems from leading car companies as well.

Most importantly, the number of active local business accounts, i.e. paying businesses on Yelp is now at 39800, which is up a staggering 68% year-over-year and up 12.1% from Q3 2012. As Yelp generates most of its revenues from small local businesses that pay on a monthly basis, this represents a strong positive for the company.

Mobile Positioning Is Quite Strong; Monetization Has Growth Potential

Yelp’s mobile monetization previously wasn’t stellar, but the company recently started portraying mobile ads in the search results on mobile. As of Jan 2013, the number of unique mobile visitors notched up to 9.4 million. Almost 46% of Yelp’s total searches came from the mobile app, which shows that users on mobile are more engaged and going forward a majority of all searches are expected to come in from mobile, according to the CEO.

Yelp is working on enhancing the mobile experience and now 25% of local ads are being shown on mobile devices. Yelp’s ever increasing large mobile traffic, and the company’s focus on the monetization of mobile will be a major factor for the company’s fortunes down the road. Higher user engagement on mobile will appeal to more advertisers down the road.

Losses Are Likely To Persist

Yelp is missing where it counts, the bottom line. While it was widely expected that in Q4 2012 that Yelp would post a loss, the company’s loss estimates was wider than expected. Yelp ended the year with revenues of $137.6 million which is up 65% from 2011, and the Net loss for the company stood $19.1 million.

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