Yelp Earnings: Revenue Growth Keeps Up

Yelp‘s (NYSE:YELP) results once again showed the effect of rapid expansion as revenue grew 72% year over year to $70.7 million in the quarter. Although, Yelp continued to report a net loss of $2.1 million in the quarter, its adjusted EBITDA improved by 470% year over year to $10.4 million. For the full year, Yelp’s revenues grew by 69% from $137.6 million in 2012 to $233 million . Adjusted EBITDA for the full year 2013 was approximately $29.4 million compared to Adjusted EBITDA of $4.6 million for the prior year.

Yelp continued to report superlative growth for all its performance metrics. The company reported 47% growth in cumulative reviews to 53 million and 39% increase in average unique monthly visitors to 120 million. While active local business accounts increased by 69% year over year to 67,200, claimed local businesses increased to 1.5 million. In this article we will discuss Yelp’s Q4 results.

Check out our complete analysis of Yelp

Outlook for Q1 and 2014

For Q1 FY14, the company expects revenues to be in $73.5 – $74.5 million range, representing growth of approximately 60% compared to the first quarter of 2013.  Adjusted EBITDA is expected to be in the range of $8 million to $9 million. For the full year, Yelp projects net revenue to be in $353 – $358 million range, and adjusted EBITDA to be in $54 – $58 million range.

Local Ads Business Revenues Improves

The local ads business currently accounts for over 75% of Yelp’s stock value and is its biggest revenue source. During the quarter, we estimate that the revenue from this division grew to $59 million, and active business accounts grew to 67,200. The primary reason for growth in this driver is the  integration of Qype, which was acquired by Yelp in 2012, with Yelp’s local business,  This was instrumental in increasing the cumulative reviews across Yelp’s international site.

Furthermore, our analysis indicates that average revenue per active local business (ARPALB) for the company grew by 5.8% in 2013 to $2887. The ARPALB improved as revenue from older cohorts or regions increased in line with company’s expectation, as stated by us in our previous note.    

Mobile Fuels Ad Revenues

Yelp competes with Google, Yahoo, Facebook and AOL for ad revenue. The unique visitors count is the primary driver for this division, and during the quarter monthly unique visitors grew to 120 million. Additionally, 44% of these unique visitors used mobile devices for accessing Yelp’s services, which equates to ~53 million monthly unique mobile users. During the quarter, 59% of all Yelp’s searches were via mobile and 47% of ads impressions were served on mobile devices. Yelp improved the mobile experience by rolling out new features for both contributors and customers. The growing number of consumers searching for local businesses online constitutes Yelp’s existing market, and in addition to company’s global expansion plans, the adoption of Yelp’s mobile platform will drive this growth in unique visitors on the Yelp site, in our view.

Deals Revenues Improves

Yelp’s deal, partnership and other services (DPO) division has been slow to take off. Currently, Yelp generates revenue from this division through any transaction that might occur on its website. Yelp’s deals platform allows merchants to promote themselves, and offer discounted goods and services on a real-time basis to consumers directly on Yelp’s website and mobile app. Yelp charges a fee on Yelp Deals for acting as an agent in these transactions.

Yelp launched new initiatives such as call to action and delivery platform to close the loop between discovering a business on Yelp and making a purchase at that business. As a result, the company is now seeing over 10,000 food orders each week. Additionally, the call to action feature has seen great traction with local businesses and national advertisers alike, driving more than 40,000 customer leads per week to Yelp advertisers. We believe that the newly launched services will drive revenues at DPO division going ahead.

We are in the process of updating our Yelp model. At present, we have $44.44 price estimate on Yelp, which is 40% below its current market price.

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