How Yelp Plans To Consolidate Mobile Gains And Reach $1 Billion In Revenue
A small investment in restaurant waitlist texting platform is one way. But Yelp's home services usage has grown by 50 percent, a sign that that local guide is diversifying its offerings.
Yelp turned in another quarter of solid earnings for Q2 and expectations for the current Q3 are looking just as strong:
- The local guide surpassed over 108 million reviews (an increase of 30 percent over Q2 2015)
- Generated more than $500 million in local revenue
- Local revenue was $152 million during the period and new account growth among smaller local businesses was “the biggest driver of the increase from $108 million” in Q2 2015
- App Unique Devices grew 27 percent year-over-year to approximately 23 million on a monthly average basis
- Local advertising accounts rise by 32 percent
- Transactions revenue from units like Eat24 came in at $15.5 million, up 37 percent from the same time last year.
- Revenue for Q3 is expected to be in the range of $180 million to $184 million, for a roughly 27 percent increase
Caveats On Yelp’s Growth Trajectory
Despite the strong numbers, Wells Fargo analyst Peter Stabler pointed out a few concerns in an analyst note on Wednesday.
One concern Stabler expressed relates to what appears to be slower ad spending in the lower ad market from SMBs.
Given the extensive efforts Google and Facebook have been putting into attracting smaller businesses’ marketing dollars, Yelp’s strength continues to be rooted in national advertisers. Though, as we’ll go into below, that could be a reflection of Yelp’s legacy, since it’s only been a year since it made local performance ads a dedicated mission for its growing its growing sales team.
“We estimate revenue from local SMBs grew 30 percent in the quarter, and that an added focus on national account growth likely pushed that segment to 70 percent growth for the quarter,” Stabler wrote.
Self-serve more than doubled, operating off a much smaller base, the analyst added.
“Though we acknowledge national accounts offer significant upside potential, we believe they also bring a higher level of measurement sophistication and could prove to be more difficult to maintain as competition increases, particularly from Google and FB, where we see an increasing focus on the local ad market and superior analytics and targeting,” Stabler concluded.
On top of that, Stabler believes there may be a disconnect between mobile app search queries and ad clicks. As we noted above, this could be a case of Yelp’s mobile focus still emerging from its infancy.
As Stabler views it, the percentage of Yelp searches conducted on mobile devices grew to 72 percent in 2Q — a meager increase from the 70 percent in Q1 2016 and the 68 percent in Q2 2015.
At the same time, Yelp’s share of mobile ad clicks has remained flat at 63 percent both in Q2 2016 and in Q2 2015.
“The indication here is that mobile ad click growth is underperforming mobile query growth, where we note the click-to-query share gap for mobile widened 400 basis points to 9 percent over the past year,” Stabler said.
Emphasis On Apps, Performance Ads
It all comes down to the level of breadth that is Yelp’s reach: during the second quarter, it connected consumers and local businesses more than 300 million times through mobile calls, clicks for directions and map views, food orders, restaurant reservations, and new reviews, CEO Jeremy Stoppelman noted in the analyst earnings call on Tuesday afternoon.
It’s no small feat that Yelp only recently completed its shift away from desktop display advertising and its emphasis on general brand awareness in favor of performance-based marketing intended to drive sales to local businesses.
“A great example of how we’re delivering results for advertisers is our work for Regal Entertainment Group, one of the largest cinema operators in the U.S.,” Stoppelman said during the earnings call. “Regal began advertising on Yelp last year and experienced dramatic increases in website traffic and high converting leads.
“In fact, it seems that consumers who find Regal Theaters on Yelp spend more time on their site and buy tickets at a much higher rate than through any of their other online advertising channels,” Stoppelman continued.
That’s paved the way for Yelp’s national account team is working directly with Regal to identify “new opportunities,” such as using targeted local advertising around new releases.
Competitive Landscape And Diversification Plans
Yelp executives sought to impress investors that with a 38 percent of the mobile app marketplace — compared to Trip Advisor and Groupon at 28 percent, YP’s network at 15 percent, Angie’s List at 5 percent, and Foursquare’s 4 percent — the company has plenty of room to grow, even as the competition for mapping, reviews, and reservations is tightening. (Tellingly, Yelp didn’t highlight the competition for reviews and local discovery coming from Facebook and Google.)
As a result, while those other sites either focus on facilitating sales to consumers or simply guiding people to targeted places of interest, Yelp is trying to find a balance between both sides by expanding its transactions via its SeatMe and Yelp Reservations tools, as well as food delivery/pickup service Eat24.
In Q2, total transaction volume grew almost 50 percent year-over-year in the second quarter, totaling nearly 6 million purchases and bookings via Yelp Eat24, Yelp Reservations and Yelp Platform, the company said.
“Now consumers can transact directly with more than 100,000 local businesses through Yelp Platform, across a growing array of categories,” Stoppelman noted.
A small bit of news was also included in the Q2 earnings: Yelp has invested in and is partnering with Nowait, a mobile platform that allows restaurants to manage their waitlist and lets dinners get in line remotely.
The two-year-old Pittsburgh startup has signed up over 4,000 casual dining restaurants, Stoppelman noted.
“Our partnership with Nowait enables us to continue to expand our consumer offering in restaurants, one of our most important and highly trafficked categories,” he said. “In the coming months, Nowait will be integrated onto Yelp Platform, enabling our consumers to see current wait times at thousands of restaurants and get in line via the Yelp app when there’s a wait.”
Q3 Expansion Plans: Home Services
For the past two years, Yelp has worked to be viewed as more than just a reviews site. The idea of diversified services goes beyond looking at conquering categories such food services or retail. Home services, attorneys, and health care are emerging as notable areas where Yelp is promoting discovery of local businesses.
In particular, Yelp CFO Lanny Baker pointed out that home services is Yelp’s largest business category, having grown 50 percent in the last year.
“No single customer represents more than 0.5 percent of total revenue, no single geographic market is more than 15 percent of revenue and even our largest category home and local services, comprises less than a third of local revenue,” said Baker, during the call. “And when you look at where our revenue growth is coming from, Yelp is still producing annual revenue growth rates of 30 percent to 40 percent on average, even in our longest standing markets. To me, that makes Yelp a broad-based and very local business, one with significant operating scale and nationwide reach that would not be easily or inexpensively replicated.”
The Billion Dollar Goal
With home services taking off, Yelp plans to concentrate more heavily on what it calls “the national and multi-location segment.”
The company has set up a smaller “specialized” sales team to go after “blue-chip advertiser accounts” like 24 Hour Fitness and TGI Fridays, which were added in the second quarter, Baker said.
“In this advertiser segment, account penetration is an important driver of growth, accounting for three-quarters of the segment’s revenue increase in the second quarter,” Baker added.
All of that had analysts asking how well-positioned Yelp was to make good on Stoppelman’s earlier promise of reaching $1 billion in revenue by 2017.
“With the size and scale that Yelp has today ,and the momentum that we’ve got, I think getting to $1 billion is something that we feel really confident about,” Stoppelman said. “The timeframe of which – we haven’t provided an outlook for next year. We’ve given you an outlook of $700 million to $708 million for this year in revenue, we’ll get to $1 billion and… we feel good about getting there in due time.”