Yelp's Mobile Monetization And International Growth Are Keys To Earnings

Apr.30.13 | About: Yelp (YELP)

Yelp (NYSE:YELP) will announce its earnings for Q1 2013 on May 1. The company announced its Q4 CY 2012 results in February and reported a solid 65% year-over-year jump in net revenues to $41.2 million. Cumulative reviews grew 45% year over year to more than 36 million, with average unique monthly visitors growing by 31% to 86 million. Active local business accounts grew 68% year over year, to approximately 40,000.

The company derives a major portion of its revenue from local advertising and brand advertising, and it also dabbles in auxiliary services like deals, reservations and bookings for additional revenue. During upcoming earnings call, we'll look at how mobile usage continues to grow and how company plans to monetize its growing mobile platform. Moreover, Yelp announced plans to expand outside of the U.S., and we will be on the lookout for any key takeaways regarding this expansion process.

Mobile Monetization Is Key for Yelp's Growth

At a recent conference, Yelp reported that 46% of its search queries originated from its mobile app. Considering that more web traffic is originating from mobile devices, Yelp's strategy to monetize its mobile platform is critical for the long term success of the company. Yelp currently has over 8.2 million monthly unique mobile users, and has integrated its services into Siri and the new Apple Maps application on iOS 6. Yelp is "rapidly becoming a de facto search engine," as users prefer Yelp over other search options for reviews.

Currently, Yelp does not carry any display ads on its mobile app, and we can expect significant revenues from the mobile app in the future as it finds ways to monetize it. Yelp does show ads on its mobile web page, which has been redesigned to be mobile-centric. Yelp's local advertising business heavily relies on local account listing and mobile visibility is fast attracting these businesses as it aids in increasing their reach beyond conventional PC users. A prospective client can review local listings on the move and decide whether he or she wants to avail the services or not.

International Expansion to Boost Revenue

Yelp has been quite aggressively pursuing its international ambitions. In Q4 CY 2012, Yelp acquired Qype, Europe's largest local reviews site, which gave it access to over 2 million reviews and 15 million unique user across 13 European countries. In 2012, Yelp also started its operations in Poland, Denmark, Norway, Finland, and other European markets. Yelp also entered the Asian market with a Singapore launch in 2012. We expect it to continue to move into additional new markets, which should lead to a significant increase in its local advertising revenues.

However, we expect average revenue per active business account for Yelp to decline from $2,860 in 2012 to $2,490 by the end of our forecast period (2019). The primary reason for this decline will be Yelp's international expansion. As Yelp looks to expand into emerging economies, the average revenue will decline because local businesses in these markets tend to spend less on ads compared to their counter parts in the U.S. However, international expansion will also help Yelp attract more eyeballs from new markets, drive page views and brand advertising revenue. We also expect Yelp to announce the number of new business listed and user that it acquired in this quarter, from expansion abroad.

We currently have a $16 Trefis price estimate for Yelp, which stands nearly 35% below its market price.

Disclosure: No positions.