Yelp’s Intl. Efforts In Focus In First Earnings Announcement Wednesday
Yelp (NYSE:YELP) will announce its earnings for Q1 2012 on May 2. This will be its first earnings release after its IPO earlier this year and so closely watched. Yelp derives a major portion of its revenue from local advertising and brand advertising, and also dabbles in auxiliary services like deals, reservations and bookings for additional revenue. In this earnings call, we will be looking closely for signs of rising operating costs as it moves to expand internationally. We’ll also look at how mobile usage continues to grow and may account for a significant portion of Yelp’s revenue, going forward.
Yelp is one of the largest online 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. Local businesses are reviewed and rated by contributors. Yelp generates revenue mainly from local business advertising, display advertising and from additional services like Yelp deals, and deals with reservation services like OpenTable (NASDAQ:OPEN). 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.
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International Expansion to Drive Growth
While Yelp has a significant presence in the U.S., it has also been expanding internationally in the past couple of years. In March, it expanded to Denmark. We expect to see a significant increase in its local advertising revenues as it targets advertisers in new markets. This rise will be driven primarily by an increase in its active paying local businesses, which we estimate will reach 90K by the end of our forecast period.
The expansion will also help Yelp attract more visitors from new markets, driving page views, and brand advertising revenue. We expect to see more light on Yelp’s expansion strategy during the earnings call.
Mobile usage on the rise
Yelp has seen a spurt of growth in mobile usage metrics in 2011. Its app was used by 5.7 million mobile users on a monthly basis in Q4 2011, which is expected to rise further, going forward. The increase in mobile usage will help it generate additional revenue from locally targeted deals, mobile reservations as well as mobile advertising and recommendations. Given the rapidly increasing smartphone penetration worldwide, we expect most of Yelp’s usage growth to come from mobile devices and tablets, instead of desktops and notebooks. There is a huge opportunity for Yelp through mobile. We’ll look for any management guidance related to how Yelp plans to monetize its growing mobile audience, going forward.
We currently have a $10 Trefis price estimate for Yelp, which stands nearly 50% below its market price.
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