Why Are Investors Giving Yelp Such Great Reviews?
Social media stocks have been struggling. The biggest exception to the routs faced by Facebook (FB), Groupon (GRPN) and Zynga (ZNGA) is Yelp (YELP), where millions of people go to review local businesses -- and sound off about rude waiters. It has bucked the trend since going public last March.
Yet it’s tough to see what makes it fundamentally different. Like others, Yelp is a revenue machine. Last quarter it reported revenue was up 67%. It made 77% of sales from local advertising, 18% from brand advertising (from national brands), and 5% from other services (Yelp Deals, a la Groupon).
And yet it’s losing money. Since inception, it has racked up $53.1 million in losses. It lost just shy of $2 million last quarter, more than the $1.1 million the year-ago quarter.
The key for Yelp and its brethren is mobile. Yelp says its mobile app was used on 7.2 million unique devices monthly in the last quarter. While it hasn’t yet managed to make the site profitable, it has demonstrated even less ability with mobile. It doesn’t have advertising on its mobile app.
It’s working on that. “When you consider that 40% of our searches come from mobile apps there is quite a bit of un-monetized mobile traffic that we expect to unlock in the near future,” chief Jeremy Stoppelman said on the most recent earnings call. But unlocking that will cost more money, and Yelp’s already spending a lot on sales and marketing, which ate up 62% of its costs. It expects those costs to keep rising, just like the stock.