By Neal Rau
After doubling over the last 12 months, Yelp Inc. (NYSE:YELP) continues to make strong strides forward in mobile ad revenue with corresponding strong revenue growth and narrowed losses in the Q2 report. Reviews increased by 41%, while unique visitors rose by 38%, but with special focus local business accounts increased by 62% too. Local business reviews continue to draw mobile users and Yelp's mobile app is the most popular tool for consumers on the go. After a big run up in the stock, can the stock continue to move higher, or should investors look to take profits?
More and more businesses are aware of their customer's online reviews on Yelp. It is easy for users who might be nearby a restaurant to check out the reviews, and even see pictures of menu items. Yelp encourages users to try new restaurants and businesses, which they might not have been willing to do without feedback from others. Yelp ratings have a material impact on independent restaurants and businesses, and those businesses and the users, who read them, count on the reviews being legitimate.
Yelp has a very strong brand, as its business was essentially built by word of mouth. The more reviews on its website, the more likely businesses are to pay to advertise. Yelp reviews are often questioned for authenticity, and this can work in favor or against the business being reviewed, so there are some challenges. Recently, I overheard a bartender talking to customers at the bar; he stated that if they like his service, he would appreciate a positive Yelp review with his name included. He went on to say how the owner looks for employees names, which are mentioned in positive reviews, and rewards them with bonuses. A few people pulled out their smart phones and posted a review right from the Yelp mobile app.
One of the most convenient features of the Yelp mobile app is how it integrates with the location-based capabilities on smart phones and mobile devices, which allows users to check reviews on businesses that are nearby. Many companies, even Google (NASDAQ:GOOG), have struggled to drive significant revenues from mobile ads, but Yelp has found a niche in local mobile. The performance of the stock can be attributed to the growth in local mobile, in terms of both traffic and revenue.
Stock Review: Yelp's stock broke above resistance recently, and resistance has converted to support. The stock is sitting just above converted support, and thus far, the stock is holding. That makes it a buy according to the report issued by Stock Traders Daily, so long as it holds.
Yelp is making great progress with its local business, but competition is growing. Google is still playing catch up, as the company works its recently acquired Zagat, into Google maps. This allows customers to search for local businesses and rate those using Google maps. This is a concern for Yelp because Google accounts for about half of its website traffic. Yelp is going to need to encourage non-app users to find its reviews in a more direct path as a result. Facebook has more than 18 million local businesses and counting, Groupon Inc (NASDAQ:GRPN) and Yahoo! (NASDAQ:YHOO) maps are also looking to take their share of the local business revenues, so competition is fierce.
In order to stay ahead, Yelp must find better ways to filter the reviews, which will keep users confident that the reviews are legitimate, and avoid tarnishing the brand. Yelp is the most recognized brand in business reviews right now, and the local mobile still has room to grow. Local business ads now make up 81% of total revenues, so finding ways to diversify revenues streams will be important going forward. The stock has a lot of momentum right now, and as long as the stock remains over converted support, as defined in our real time trading report, Stock Traders Daily expects the stock to move higher.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receive compensation from the publicly traded companies listed herein for writing this article.