Yelp’s Q4 Shows Performance Progress As Local Ad Dollars Climb 35 Percent
The city guide is also making strides in mobile, as its app users visited more pages compared to those who access it on desktop.
Yelp’s Q4 earnings leaked a few hours early due to a mis-timed press release, but the results contained largely good news for the local guide platform’s efforts to shift its ad sales toward performance-based units while paving the way for greater mobile user activity.
Among its chief accomplishments in Q4, Yelp’s local ad revenue rose 35 percent year-over-year to $125.9 million. In turn, brand advertising dollars from national display sales fell 18 percent to $7.1 million. And that puts an end to Yelp’s brand ads.
However, a look at one of Yelp’s key metrics — its core reviews feature — suggests that it needs to do more than be viewed primarily for its consumer critiques and praises.
While sequential comparisons for earnings results is generally not the best measure — growth trends tend to be seasonal — considering that Q4 tends to be stronger than Q3, it makes sense to view Yelp’s trends over the latter half of 2015 to get a sense of how its future plans are likely to fare.
For example, cumulative reviews were up 34 percent to 95 million from Q4 2016; but it actually represented a slowdown from the 35 percent reviews gains in Q3.
And while local advertising accounts were up 32 percent to 111,000 year-over-year in Q4, that upward motion seems like a reversal when looking at the 37 rise in that area during Q3.
Phase Out Of Brand Ad Sales Is Complete
The phasing out of brand ads was promised by CEO and founder Jeremy Stoppelman during Yelp’s Q2 earnings call, but it took a while for the message to become clear. The realization was not only that national brand ads were weak, but that efforts to derive growth in that area were distracting Yelp’s sales team from playing to its natural strengths, i.e. performance-based ads, primarily cost-per-click and native units, that appealed to the SMBs and local businesses that Yelp exists to promote.
Winding down the company’s reliance on desktop-oriented national branded display also reflected the shift of Yelp’s users from desktop access to its mobile apps. Considering that Yelp’s typically on-the-go users come to its platform to search a specific kind of service, from restaurants to retail to even legal representation, the platform ultimately wasn’t much of a place for national advertisers to reach casual web browsers.
While cautioning that their transition to performance ads and more mobile engagement will take time, Yelp can claim some early success, with 61 percent of local ad revenue in Q4 2015 coming from CPC marketers, compared to 32 percent during the same period of 2014.
While the performance shift represents a defensive posture in the face of Google and Facebook and other platform companies’ moves to drive profits and sales by tapping the growing adoption of digital marketing services at the local level, the move is also related to Yelp’s expansion from its core local reviews and listings to on-demand services, including food delivery and restaurant reservations.
Dining In, Taking Out With Yelp
In 2015, Yelp bought app-based GrubHub/Seamless rival Eat24 for $134 million. While that food ordering app hasn’t paid for itself just yet, Eat24 did show faster revenue growth in Q4, with sales up roughly 80 percent versus the year before.
Meanwhile, over 15 million diners were seated through Yelp’s version of Open Table’s reservations platform, SeatMe, making for an increase of approximately 120 percent versus Q4 2014. To point out the growth in this area, when Yelp bought SeatMe in summer 2013, it had about 200 customers; it finished 2015 with about 2,800 paying customers.
“Transactions revenue,” as that section is identified, was $14 million up from a mere $1.4 million in the fourth quarter of 2014 in the months before the Eat24 deal.
“In San Francisco and Los Angeles, we estimate that SeatMe is more than 20 percent of OpenTable’s size, based on number of customers and we are happy with the significant progress we made in just 2.5 years, ”
Recently, DOSA, a restaurant in San Francisco, switched from OpenTable to SeatMe and had their best December in years as the number of diners increased after the switch. Similarly, LA’s Hinoki & The Bird switched to SeatMe in October, after seeing its two sister restaurants successfully utilize our cloud-based table management software. While we believe our revenue will be driven by our local advertising business over the next few years, we are excited about the long-term potential of our transaction business.
Even beyond the revenue story, the focus on transactions also helped drive a monthly average of 20 million uniques via Yelp’s mobile apps — a jump of 38 percent over the same quarter in 2014. During that period, Yelp app users were “more than 10 times as engaged as website users” when comparing number of pages viewed between smartphone and desktop.
“We are pleased with the progress we made on the key initiatives we set at the beginning of 2015,” said Stoppelman, in the earnings release. “We have evolved to a mobile-centric company and have successfully completed our transition to a performance-based advertising business. In 2016, our priorities are to continue to build our core local advertising business, further increase engagement and awareness and grow transactions. With our rich, relevant review content and highly engaged consumer traffic, we are well-positioned to capture the enormous opportunity ahead of us.”
Update: During the call, Yelp executives noted that there was a 45 percent hike in the number of salespeople — with plans to grow the sales team by another 20- to 30 percent this year — but that it’s still going to take them some time to close deals.
Asked about competition from Facebook and Google, Geoff Donaker, Yelp’s COO, conceded that local advertisers do mention those rival offerings. “But that’s a good thing — it means they’re advertising online,” Donaker said. “It’s much more difficult to get local advertisers who are still tied to print to shift to digital.”
Stoppelman discussed what has been, up to this point, an untapped in digital marketing growth among local businesses. That SMB market is ready, as he pointed to the continued viability of legacy marketing channels — and how Yelp is attempting to wrest those dollars toward supporting its brand of online discovery for the U.S.’s 20 million businesses and services.
“The vast majority of local business owners continue to advertise in traditional offline channels,” Stoppelman said (see the Seeking Alpha transcript for more). BIA/Kelsey projects that the Yellow Pages industry will generate roughly $7 billion in 2016. Even though according to a 2015 BrightLocal study, more than 90 percent of consumers read online reviews when looking for a great local business. Migrating these offline marketing budgets online continues to represent a huge market opportunity for us.”
Citing ComScore estimates, Yelp has only about 30 percent reach on U.S. smartphones, suggesting greater room for growth, Stoppelman said. Efforts to drive brand awareness through its first TV ad campaign promoting Yelp as “the place to be” for local businesses as well as consumers, a Yelp-commissioned Nielsen survey found that brand awareness increased from 26-to 41 percent over the last year among U.S. adults online.
To build on that campaign, Yelp told analysts it plans to spend another $50 million on awareness efforts this year, $20 million more than last year.
Recapturing A Client After Rejection
The gambit involved in abandoning brand awareness in favor of CPC ads has been paying off already, Stoppelman said. He offered the story of a former client KinderCare Education, a Portland, Ore.-based daycare chain with over 1,000 locations across the U.S., and how the sales was able to make it a returning Yelp ad sales customer.
KinderCare had advertised on Yelp starting in 2011 and ending in 2013. The childcare chain cited a drop in its ability to generate quality leads and decided to give Yelp another shot with its CPC program.
“We are pleased to see KinderCare return to Yelp and this experience underscores the importance of communicating ROI to business owners,” Stoppelman said.
Stoppelman also highlighted its business-facing app to allow owners/managers the ability to upload photos and respond to reviews while on-the-go so they could better mirror the customer experience. “The percentage of business owners who use the app daily is twice as large as those who use the website daily,” Stoppelman said, “adding that demonstrating how important mobile apps are to driving engagements.”
The Importance of App Indexing
Credit Suisse analyst Stephen Ju noted that Google still favors — and does well with — the mobile web.
In prefacing his question, Ju mentioned that when he searched for business on the Google Now app on his iPhone and clicked on a link for a Yelp business listing, it still took him to the browser-version instead of the app.
“I am wondering whether app indexing is important to you,” Ju said. “And if so,” and when we might see the implementation, should we start seeing I guess a greater traffic flow through to the app?”
Blaming Google Now’s apparent app blindness, at least when it comes to Yelp, Stoppelman pointed to “a function of a number of different things” for not opening the Yext mobile app.
“Apple has been changing around the way that they allow developers to do that and also there is user preferences involved,” Stoppelman said. “So it’s possible that you just turned it off, or it’s possible on the configuration that you are got that it’s not, that there is no way for us to send you directly into the app. And so we continue to work on that and try to identify all the kind of kinks in different corner cases that might result in you having the Yelp app, but not necessarily going straight into it. In general, on average we should be doing that.