Yelp upped its marketing to entice local advertisers to ante up. Relatively few are advertising, which is either a huge opportunity for Yelp, or a sign of its shortcomings.
Yelp Inc., owner of a website that compiles consumer reviews of local businesses, reported first-quarter revenue that exceeded analysts’ estimates as a push into new markets helped bring in more advertisers.
Sales climbed 68 percent to $46.1 million, the San Francisco-based company said today in a statement, topping the $44.5 million average analyst prediction compiled by Bloomberg. Yelp’s second-quarter revenue forecast also beat projections, and the company’s shares jumped as much as 12 percent.
Chief Executive Officer Jeremy Stoppelman has forged partnerships with companies such as Apple Inc. and ramped up marketing spending to woo local advertisers, which made up 79 percent of revenue last year. At stake is a local online ad market that may rise to $41.1 billion in 2017 in the U.S., from $23.1 billion in 2012, according to researcher BIA/Kelsey.
“The integration of Yelp’s platform into Apple’s iOS remains a driving force in both growing users, as well as expanding the advertising base for Yelp’s customers,” Brian Blair, an analyst at Wedge Partners Corp. in New York, wrote in a note to clients last month. “This has been a core piece of our positive thesis on Yelp’s fundamental growth story.”
Yelp’s first-quarter net loss narrowed to $4.8 million, or 8 cents a share, from $9.8 million, or 31 cents, a year earlier. Analysts on average were projecting a loss of 6 cents.
Second-quarter revenue will be $52.5 million to $53.5 million, the company said. That compares with the average analyst projection of $50.4 million, according to data compiled by Bloomberg.
Yelp shares rose as high as $28.30 in extended trading. They had fallen 2.8 percent to $25.30 at the close in New York, and have gained 34 percent so far this year.
Total reviews on Yelp’s sites, where consumers rate and comment on local businesses such as coffee shops, hair salons, pet shops and plumbers, increased 42 percent to more than 39 million, while average monthly unique visitors grew 43 percent to about 102 million, Yelp said.
The company expanded search ads to its mobile application in the fourth quarter and display ads in the first three months of the year, something that will continue to expand customer reach “significantly,” according to Blair. About 45 percent of Yelp searches originated on the mobile app in the first quarter, the company said.
While Yelp previously showed ads on its desktop website and mobile browser, its customer base is increasingly logging into the site through its mobile application. More than 75 percent of Yelp usage will be on mobile apps in the next 12 to 18 months, Blair estimated in a February note.
Yelp charges customers for a package of advertising impressions, and then distributes the ads across its mobile browser version, desktop website and mobile app.
“Still a relatively very small percentage of local merchants in these markets are paying customers of Yelp’s,” Tom White, an analyst at Macquarie Capital USA Inc. in New York, said in an interview. “Some people view that as a big opportunity.”
In the first quarter, 36 percent of local ads were shown on mobile devices, Yelp said today, an increase from 25 percent in the fourth quarter. The app was used on about 10 million unique mobile devices on an average monthly basis in the recent period.
Yelp entered its 21st country — New Zealand — today, and has also started selling ads in France and Spain, Stoppelman said on a conference call following the report today.
Editors: Jillian Ward and John Lear.