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

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.

For 2013, revenues should range in between $210-$212M, which represents a projected 53% top line growth compared to 2012. It is very likely that based on a not so rosy picture painted by the company’s management, losses might be ongoing.

Competitive Threats

Google+ Local is Yelp’s major competitor for online reviews for restaurants, hotels and shopping etc. As most of Yelp’s traffic comes in from search engine, the threat of Google is ever increasing. Yelp and Google along with Tripadvisor Inc (NASDAQ:TRIP) have been entangled in a lawsuit, accusing Google of tweaking search results in favor of Google’s own services and for scraping content from Yelp and TripAdvisor. However, the lawsuits have been settled, and Google continues to have a strong array of local and travel content from Frommers, Zagat using Search, Maps and ITA Software which represents a strong threat for Yelp and other players.

The global travel information platform, Tripadvisor Inc (NASDAQ:TRIP) is working towards building a stronger app on Facebook Inc (NASDAQ:FB) and on mobile. TripAdvisor has more than 50 million monthly unique visitors, and averaged more than 40 million visitors from Facebook Inc (NASDAQ:FB) and its app on Facebook, according to AppData.  In addition, TripAdvisor keeps on getting tailwind for growth from Facebook as a large portion of Facebook’s users contribute heavily in posting reviews for the company. TripAdvisor is already very popular with travelers for providing them a one-stop shop for all their travel information when visiting a new place and now poses an even stronger threat to Yelp and even Google+.

In addition to the other big players, Facebook itself has portrayed its intentions to build a local search platform in its social media setting with the collective wisdom of friends and family of its 1 Billion users. However, Facebook is still in data collection mode, and will take the social media giant months if not years to collect in-depth reviews that are useful right away. And also, many Yelp users would be reluctant to post the same review on Facebook again or other competing social platform, which limits competitive threats for Yelp.

The Takeaway

Yelp has unveiled a number of notable positives recently, in particular its solid positioning in mobile and improved monetization. Unfortunately, the company has been unable to attract big brand advertisers who command large marketing budgets, compared to its target market of small local businesses. Even though, the company continues to drain its cash, the users are growing at a rapid rate, in spite of many large competing firms like TripAdvisor, Google and Facebook.

Yelp is increasingly enhancing its probability of being a good and robust social platform down the road. The company hasn’t been delivering the profits, but once users flock the site in larger numbers, monetization will take-off big time, and so will the stock.

The article Time To Buy This Web 2.0 Company? originally appeared on and is written by Ishfaque Faruk.

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