2 Factors Driving Yelp’s Brand Advertising Business
Yelp (NYSE:YELP) is one of the largest online local business search, review and recommendation service, which enables consumers to access ratings, and read reviews and opinions about local businesses like hotels, restaurants, salons, dentists and mechanics on their website. It competes primarily with other online business review services like Google (NASDAQ:GOOG) Places, Yahoo (NASDAQ:YHOO) Local, Angie’s List, CityLocal and Gumtree; display advertising players like Google, Yahoo, Facebook and AOL (NYSE:AOL); and daily-deal sites like Groupon (NASDAQ:GRPN) and LivingSocial.
Check out our complete analysis of Yelp
Yelp generates revenue through local advertising, display or brand advertising and other services. Through brand advertising, Yelp enables leading consumer brands to display their graphical and text ads on its platform using fixed-price or impression based plans, giving their brands exposure to millions of visitors.
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It is an important revenue source for Yelp and accounted for more than 20% of its overall revenue in 2011. Going forward, we expect its brand advertising revenue to continue to increase as it attracts an increasing number of visitors. See a recent note on our value of the entire company in Why Yelp is Only Worth $10.
Here are the two major factors which will drive the growth in Yelp’s brand advertising revenues in the coming years.
1) Yelp’s unique visitors expected to increase
Yelp’s display advertising revenues are directly linked to the number of visitors on its platform. Yelp had around 58 million average monthly unique visitors in 2011. As Yelp expands into new markets, we expect the number of visitors to increase steadily throughout the forecast period, reaching more than 225 million by the end of our forecast period.
We expect the trend of consumers searching for local businesses online and through Yelp’s mobile apps to accelerate in the coming months, which should drive even more traffic to Yelp’s platform. Yelp currently has the largest repository of local business reviews – more than 25 million – which makes it the preferred destination for users searching for businesses in their vicinity.
2) Average revenue per unique visitor to decline
Yelp generated around $25.50 in average revenue per unique visitor in 2011, down 9% from $27.90 in 2010. Going forward, we expect it to decline further throughout the forecast period, as Yelp expands into international markets which have traditionally had a lower ARPU than the U.S., due to lower advertising spend.
The increasing competition in the display advertising space from the likes of Google, Yahoo, Facebook and AOL will also weigh on Yelp’s brand advertising revenues.
We currently have a $9.30 Trefis price estimate for Yelp. Local advertising accounts for 64% of its overall value, while brand advertising and other services like Yelp Deals account for the remainder.
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