Yelp is one of several players attempting to address the local advertising market. Given the overwhelming dominance of SMB's within the space, conversion of this segment to online advertising has lagged broader market trends, yet the opportunity remains a significant one given the size of the local advertising market.
Revenue and profit growth
Revenue came in at a significant $88.79 million, up 61.6% from 2Q 2013's $55 million, and exceeding most analyst expectations. Yelp also reported a profit of $0.04 per share, which comfortably exceeded most analysts expectations for a loss.
Active business users and ARPU increase
I was particularly encouraged by a couple of metrics that suggest Yelp is providing significant value to core business accounts. Yelp experienced good growth in average revenue per active local business (ARPU), which increased from $312 in Q2 2013 to $330 in the most recent quarter, for a growth of 6.1%. This is indicative of underlying business value provided by the Yelp platform to it's core customer base.
Yelp also saw increases in active local business accounts of almost 55.4% from 51,000 accounts to 80,000 in the most recent quarter. This is significant because it represents Yelp accounts who are active revenue generating customers for the company, as opposed to those businesses that are free users. Expansion of the number of active paying businesses is also an indication of the perceived value that Yelp provides.
Yelp is ultimately a community based platform and as such is dependent on the active participation and growth of users to provide value and monetization opportunities with businesses.
Unique visitors grew 27.8 percent year-over-year to 138 million, with growth in cumulative Yelp user reviews expanding from 42.5M to 62.3M in the recent quarter. This represents growth of 46.5%.
Conclusions and Key Takeaways
Overall Yelp reported very solid operational performance and continues to be on track to be a very strong player in the local advertising market. While there were some concerns around the small growth in the addition of new business accounts (only some 6,000 were added last quarter), the fact remains that Yelp is providing value to customers as evidenced by the strong increases in active business accounts and in user ARPU. Also, the significant investments that Yelp has made in sales force headcount should start to pay returns over time as experience and productivity of the sales force improves.
I am interested to see what impacts Google's Panda update has on returning relevant Yelp listings versus Google's own results being prioritized. For the moment, this doesn't appear to be much of a concern give the strong growth in unique visitors.
Disclosure: The author is long YELP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.