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Yelp Inc (YELP): Yelping for a Higher Stock Price

The local ad market offers tons of opportunity and Yelp Inc (NYSE:YELP) provides possibly the best way to play that market. The local online ad market already has reached $23 billion of the roughly $100 billion spent in local ads each year. Yelp is quickly placing itself as the place to generate high quality leads via check-ins, reservations, clicks to their websites, phone calls, and even directions with a depth of user reviews that can’t be replicated by a new service.

Yelp Inc (NYSE:YELP)

The stock trades at a high of 10 times current year revenue, yet it might have plenty of upside with a market value of only $2.3 billion. The company competes against Angie’s List Inc (NASDAQ:ANGI) and compares to Angie’s List Inc (NASDAQ:ANGI) for user review potential.

Mobile advantage

Yelp Inc (NYSE:YELP) saw a surge in revenue during Q1 2013, partially due to the uniqueness with its service that mobile drives similar ad rates as desktop. Due to the nature of local purchases, a user on a mobile phone is more valuable than somebody sitting at home.

Yelp saw mobile users on 10 million unique devices during Q1 with 36% of total impressions coming from the mobile app. The company just began mobile display ads during Q1 and the number should only grow from here.

These additions helped total revenue surge 68% year-over-year while reviews and monthly unique visitors only grew around 43%. The revenue growth was lead by an 81% surge in local revenue, partially benefiting from the unique advantage of mobile traffic.

Closest competitor

Angie’s List is seen as the biggest competitor, though the company operate a different model. Angie’s relies on reviews from verified members that pay subscriptions to join the site. Yelp Inc (NYSE:YELP) relies on free users that bring a larger pool of reviews though some see the quality as less. Typically, Angie’s is seen more in the services sector versus the restaurant reviews on Yelp.

At the moment, Angie’s is the larger company with revenue expected to hit $247 million in 2013. That amount slightly exceeds the $219 million Yelp is expected to generate. Oddly though, Yelp Inc (NYSE:YELP) has a considerably higher market value than the $1.6 billion of Angie’s, predominantly due to expectations that the free user model will eventually swamp the content available from the limited membership base of Angie’s. If investors think the quality of user reviews will eventually win out, than Angie’s does provide an attractive valuation at these levels.

User review comparison

While TripAdvisor operates in the completely different travel industry, Yelp does offer reviews in that category that could end up competing head to head more in the future. TripAdvisor, though, is more useful for a comparative valuation analysis and gauge of the future potential of Yelp.

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