Even though arguably valued richly, Yelp stock still managed a remarkable rise of 25% in the wake of its most recent quarterly earnings report.
What’s driving the optimism for a company that lost 8 cents a share (more than estimates), but posted strong revenue growth of 68% year over year (ahead of estimates)?
- When it went public, the company had scant revenues, but was already becoming universally known and widely used.
- Unlike some companies in this user-generated-content space, its international expansion is relatively seamless and legit (like TripAdvisor).
- Mobile! Some companies worry that rapid shifts to mobile user engagement mean challenges for monetization. Yelp is already killing it in this channel and is only just getting warmed up.
- The “freemium,” “claim your company and then consider the benefits of paying for enhanced listings” ad sales model is logical and is amenable to constant refinement. Quite simply, Yelp is doing a good job of perfecting and scaling the model, and there is no reason to think it won’t be highly profitable as it grows. Compare the nightmare scenario at Angie’s List where the money largely comes from users, they churn endlessly, and to make up the slack, the company is also taking revenues from companies, something their print advertising has trumpeted they never do.
- Despite some grumbling about review content (a necessarily messy world where the veracity and usefulness of reviews falls under constant scrutiny), Yelp is easy to recall, and basically likeable. When you see a story about folks reviewing jails on Yelp, it’s a fairly good sign that you may be top of mind. Controversy isn’t bad, as long as people understand what they can do with your app.
- Most of all, Yelp is doing what, in going public, it tacitly promised investors it could do: turn into a viable, big-time business of far-reaching relevance to consumers and businesses in every city and town in America, and many countries around the world. Those who bet against them executing on that have been proven wrong.