Could Apple's iWatch Make Yelp Investors Rich?
Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s no secret that Apple (NASDAQ: AAPL) has been late to the social media game. But there’s good news for Apple investors and investors in general. Not only has the company figured out how to best leverage social media into its products, but Apple’s social media strategy is also providing investing opportunities for those willing to pay attention to Cupertino’s ongoing social media moves.
Learning From Ping’s Demise
Apple’s first move into social media provided a valuable lesson for the company: Just because you built it, doesn't mean people will use it.
If you recall, Ping was meant to connect people through music. The product allowed similar-minded music lovers to share and explore music within the Ping platform. Apple’s long term plan for Ping was likely to expand the platform’s scope as it built up its member base -- think Apple’s version of Facebook.
Unfortunately for Apple, its music-based social platform wasn’t compelling enough to attract social media users already personally invested in other social media platforms, like Facebook or Twitter.
Ping’s failure seems to have led to a total shift in Apple’s social media mindset, which now can be summarized as, “Why build it, when you can borrow it?”
You see, most social media platforms generate their revenues through ads and search; while Apple gets the majority of its revenue from selling hardware. So, the company has little at stake in terms of what social media platforms are accessed -- as long as the user feels that Apple’s products provide the best experience for accessing social media.
So Cupertino’s focus is now on integrating social media solutions into its products using other companies' media products, with companies like LinkedIn and Yahoo! all benefiting from being “built into” Apple’s product experience.
This strategic shift is great news to any social media company that finds itself tightly integrated into Apple’s attractive ecosystem, because it provides those companies with a pipeline to the internet’s most valuable online/wireless users. iPhone and iPad users have repeatedly been shown to have higher incomes, spend more time online, and spend more money online than Android users.
Now, the question for investors: Where does Apple’s social media strategy provide any investment opportunities?
Apple's iWatch and Yelp: A Match Made in Heaven
Integrated into Apple Maps and Siri search in the iOS 6 update, Yelp (NYSE: YELP) now constitutes a major component of Apple’s social media support. Searches for local businesses via Apple’s Siri voice assistant now return Yelp listing information and recommendations tied to Apple’s mapping application, along with other information provided by Yelp, including deals, contact information, and pictures of the business.
Yelp has shown that its business model works in mobile, with 36% of the company’s ad impressions now derived from mobile users. In addition, it appears that Yelp’s business model might actually have more value in mobile, as reflected in its mobile real-time deals and check-in functionality.
While Yelp is not expected to show a profit until 2014, revenue growth for the company is impressive, with Q1 2013 revenue up 68% ($46.1 million).
For 2013, net revenue is expected to be in the range of $216 million - $218 million, up 58% over 2012 levels.. Yelp's strong revenue growth is reflected in its stock price which is up approximately 145%, since its March 2012 IPO.
Despite the rapid appreciation in Yelp’s share price, there is reason for continued bullishness in the company. Right now it appears that wearable computing might be the next big catalyst in mobile. If these wearable expectations hold true, we can expect to see voice search move rapidly toward the mainstream. (Typed search would be too unwieldy on a small, wearable device.)
The integration of Yelp into Siri gives company a virtual monopoly for local business search on Apple’s iOS platform -- a potential competitive advantage that could prove extremely lucrative to Yelp.
The obvious risk to this investment thesis is its tie to the success of Apple’s wearable products. That said, it makes sense for investors to closely track the expected launch of Apple’s wearable products as a way of evaluating the potential of Yelp’s stock upside.
The Foolish Bottom Line
Since the demise of Ping, Apple appears to have shifted its social media strategy to focus on integrating existing media into its products. Potentially lucrative investment opportunities exist for the investors who are able to identify social media company’s that can materially profit from their integration into Apple’s products. Yelp might be such a company.
Potential Yelp investors should track adoption rates of Apple’s wearable computing products, as high adoption rates could point to significant upside for Yelp stock.
Bill Shambllin owns shares of Yelp and Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!