Yelp’s Mobile Shift Shows Progress, But Local Advertisers Signal Skepticism
Mobile app use is up, so are the number of Yelp reviews, and even transaction revenue now appears meaningful. But it's not enough for investors.
Three years after Yelp abandoned desktop-oriented national branded display sales in favor of a performance-based cost-per-click advertising and transaction-oriented revenue, the local guide continued to make notable strides in Q1.
But even with revenue gains not rising as high as expected, Wall St. punished Yelp’s stock by sending shares down 28 percent after executives on the company’s Q1 earnings call conceded that its overall sales would not be quite as robust as previously thought.
Nevertheless, on most points, Yelp is moving in the right direction. The main problem that has plagued the company for the last two years: growing, training, and retaining the salesforce needed to push its performance ads. It also needs people to do the outreach and attract local partners to its various “transaction” businesses, including like the Seamless/GrubHub rival Eat24, reservation platforms SeatMe and Nowait, which it fully acquired in March.
The company has begun to arrest the salesforce problem, said CEO Jeremy Stoppelman during the Q1 earnings call. The number of people in sales at Yelp was up 11 percent year-to-year at the end of the first quarter at 2,550 people. The CEO expressed hope that the salesforce numbers would be up by “double-digits” by the end of the year.
Building Transaction Businesses
Yelp has also put large hopes in its Request-A-Quote feature. That program has been around for years, but has really started to come into its own since last spring. Request-A-Quote was previously known simply as “message a business” that allowed Yelp users to ask for a price of services before making a purchase.
Request-A-Quote volume growth rose almost 30 percent since Q1 2016, CEO Jeremy Stoppelman told analysts during the earnings call. “This feature which is barely a year old is now at a run-rate of 10 million requests annually,” Stoppelman said.
The transaction segment also was rounded out with last month’s $20 million purchase of location-based loyalty and retargeting platform, Turnstyle, which runs an in-store platform that then connects marketing services to consumers’ phones at 3,500 business places.
“When integrated with Yelp, Turnstyle’s technology has the power to provide clear attribution between Yelp advertising, store traffic, and offline purchases,” Stoppelman said.
Some of the highlights from Yelp’s quarter:
- Cumulative reviews grew 26 percent year over year to approximately 127 million.
- App Unique Devices grew 22 percent year over year to approximately 26 million on a monthly average basis1.
- Paying advertising accounts grew 17 percent year over year to approximately 139,000
- Transactions revenue totaled $18.1 million, representing 25 percent growth compared to the first quarter of 2016.
- Other services revenue totaled $2.2 million, representing 107 percent growth compared to the first quarter of 2016.
An Uncertain Local Ad Landscape
While Stoppelman has often sought to position Yelp squarely in the middle of the rise of location-based marketing and advertising. After all, as an early pioneer in the local space over the past 13 years, Yelp should be able to capitalize on what BIA/Kelsey’s five-year forecast says will be a local marketplace reaching $172.2 billion by 2020.
But for now, Yelp has more convincing to do to at the local level.
The company is shifting away from “local advertising accounts,” which were 143,000 during the quarter, missing analysts’ estimate of 144,000. As Yelp works to retire that metric to encompass “all national business” dubbed “paying advertising accounts.”
“The new paying advertising accounts metric excludes Yelp Reservation customers who are not paying advertising customers and it includes ad agency and reseller partners just as our ad revenue does,” CFO Lanny Baker explained during the analysts call.
Paying advertiser accounts were approximately 139,000 in the quarter, representing 17 percent growth over last year, an increase of 4,500 from December 2016 to March 2017.
Baker tried to put the best face on the ad progress Yelp has made, even if investors felt that the growth just isn’t good enough.
“That sequential increase was improved from the fourth quarter of last year but reflects the impact of lower account retention in the first quarter,” Baker said.
The local sales channel, which includes revenue generated by Yelp’s outbound sales teams, grew at rate in the “high-teens,” Baker said, while the national channel, which accounts for just over 20 percent of total ad revenue, was upin the high-20 percent range. The national gains were driven by franchise and mid-market customers.
“The self-serve business continues to be our fastest-growing channel with year-to-year revenue growth in the 70 percent range in the first quarter,” Baker said. “In addition to the new customer momentum, we saw double-digit increases in revenue per customer in self-serve, again, during the first quarter.”
As Facebook and Google, and other ad tech players seek to tap the local business level, many businesses have already shown a preference for social media marketing a daily part of generating sales. Ad campaigns are fine for brand awareness, but many local businesses’ don’t have the budgets for recurring campaigns. Plus, ROI is even more important to SMBs than creating affinity from audiences outside their immediate locations.
In that sense, Yelp’s broadening of its varied transaction businesses is ultimately where the company can realize that expected growth in the larger location-based market.