VALUATION HIGHLIGHTS

1. Local Advertising constitutes 84% of the Trefis price estimate for Yelp's stock.

WHAT HAS CHANGED?

1. Yelp Q3 Snapshot

The company showcased a 4% increase in net revenue to $360 million. This figure met analysts' expectations, which pegged revenue at $360.37 million. Notably, the adjusted earnings per share (EPS) surpassed forecasts, achieving $0.56 compared to the $0.42 estimate. During the quarter, Yelp's services segment was a standout performer, increasing advertising revenue by 11% year-over-year, with Home Services observing a remarkable 15% growth. This growth underscores the segment's vital role within Yelp's business structure as consumers continue to rely heavily on service-related recommendations. On the other hand, Yelp's restaurants, retail, and other category continues to face pressures, with persistent headwinds affecting revenue diversification efforts. The segment's challenges reflect ongoing economic pressures that have been exacerbated by shifting consumer spending and competitive dynamics, particularly from delivery service platforms.

Note: Yelp's FY'23 ended on December 31, 2023. Q3 2024 refers to the quarter that ended on September 30, 2024.

2. RepairPal Acquisition

Yelp acquired RepairPal, a strategic move designed to bolster its presence in the auto services advertising vertical, for $80 million. The acquisition is intended to secure Yelp's competitive edge and drive further revenue growth in a lucrative segment.

3. 2024 Outlook

Looking forward, Yelp has aligned its full-year net revenue expectations in the range of $1.397 billion to $1.402 billion, adjusting slightly down from previous guidance. It expects adjusted EBITDA to be between $341 million and $346 million for the full year, indicating sustained profitability amid fluctuating market conditions.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Local Advertising

• Yelp's Active Local Business Accounts: Yelp had over 544,000 active local business accounts in 2023. We currently forecast the number of active local business accounts to steadily increase, as it continues to expand aggressively, reaching around 856,000 by the end of our forecast period.

Yelp deals revenue

• Yelp's revenue from Yelp Deals, partnership and other services: Over the past few years, Yelp has sold Eat24 etc to GrubHub. As a result, its deals and partnership revenue declined from $75.2 million in 2017 to $37.3 million in 2019. In addition, the pandemic led these revenues to decline further to $36.8 million in 2020. However, this figure grew to $47 million in 2021 and further up to $61 million in 2023. We expect the division's revenues to grow to $83 million by the end of our forecast period.

Sales And Marketing Expenses

• S&M as a percentage of Revenue: We currently expect Yelp's selling and advertising expenses (S&M) to increase from around 39% in 2023 to 41.5% by the end of the forecast period. Given the increasing competition in the online business review and recommendations space, Yelp may have to incur increasing amounts of marketing expenses going forward.

BUSINESS SUMMARY

Yelp is a local business search, review, and recommendation service that allows consumers to access ratings and read reviews on local hotels, restaurants, salons, dentists, and mechanics on their website Yelp.com. These businesses are reviewed and rated by contributors.

Yelp currently has more than 285 million reviews of local businesses in the North American markets. The company currently offers information on more than 4 million businesses in the markets it operates in. It had around 97 million monthly unique visitors at the end of 2023.

Yelp generates revenue mainly from local business advertising, display advertising, and additional services like Yelp Deals, and deals with reservation services like OpenTable. It competes primarily with other online business reviews services like Google Places, Yahoo Local, Angi (formerly Angie's List), CityLocal, and Gumtree; display advertising players like Google, Yahoo, Facebook, and AOL; and daily deal sites like Groupon and LivingSocial.

SOURCES OF VALUE

Local Advertising is Yelp's most valuable business

Yelp is a local-business review platform in the United States and 95% of total revenue generated through advertisements. Its local advertising platform leverages the power of inbound marketing, which leads to a higher customer conversion rate than traditional display advertising. We expect its local advertising revenue to grow in the coming years, as it expands into multiple international markets.

Huge repository of local business reviews and large user base

Yelp has the largest database of local businesses in the markets in which it operates, especially in the United States. It has around 287 million user reviews of around 4 million local businesses. Due to its large repository of user-generated information, it attracts around 97 million monthly unique visitors every month, which makes it a very attractive advertising and marketing platform for local businesses, that are trying to attract new customers.

Proven expansion and market development strategy

Yelp has a proven market development strategy that it uses to expand into new markets in the United States. While it has exited the international markets, it plans to expand its services aggressively in the untapped U.S. markets.

Large community and network effects

Yelp has one of the largest communities of active contributors, who write detailed reviews about local businesses. Its large repository of reviews attracts around 97 million unique visitors every month, which makes it the perfect advertising platform for local businesses looking to gain new customers. This, in turn, helps Yelp generate increasing amounts of revenue from local and display advertising, as well as offerings like Yelp Deals and hotel reservations.