How to Make Money off Other People's Opinions
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Is it possible to make money off of other people's opinions? If you study up on these following companies, you just might be able to!
Yelp (NYSE: YELP) was founded in 2004, and provides user-generated reviews on restaurants, stores, and activities. Yelp had an average of approximately 102 million monthly unique visitors in Q1 2013, and its users have written over 39 million local reviews to date.
Yelp went public in March 2012 at $15 a share, and a valuation of $898.1 million. The company currently trades right around $30/share, with a market cap just shy of $2 billion. Revenue growth has been impressive (net revenue was $46.1 million in the first quarter of 2013, reflecting 68% growth in net revenue from the first quarter of 2012), as has the growth in reviews (39 million, up 42% from a year ago), monthly unique visitors to the site (up 43%), and active local business accounts (45,000, up 63%).
Yelp, like its competitor mentioned below - Angie’s List (NASDAQ: ANGI) - drives real revenue to local businesses. A study by the Boston Consulting Group showed that a business saw an average annual revenue lift of $8,000 just by claiming its free business owner account on Yelp.
Investors who got in at the beginning Yelp were in for an initial (but not unexpected) bumpy ride, but have doubled their investment in the past 1.5 years. But can the company continue to grow and be profitable?
Yahoo! (NASDAQ: YHOO) CEO Marissa Mayer has mentioned a few times that Yahoo! needs “more personalized content and increased product innovation.” What better way of getting instant access to personalized content, while increasing search engine capability, than acquiring a review site?
An investment like Yelp, (and there are rumors Yahoo! might consider it) would help beef up Yahoo!’s services, plus bring in more mobile revenue. Yelp only launched mobile display ads in the most recent (first) quarter. In that quarter, 36% of local ads were shown on approximately 10 million unique mobile devices on a monthly average basis (roughly 10% of monthly users were mobile).
According to the website All Things D, sources inside Yahoo! say:
...direct mobile revenue hovers only around $125 million annually, mostly from search revenue on mobile devices. While users are consuming lots of Yahoo! Web pages on their phones, which could technically boost the sales numbers higher, rendering most desktop-created ads on mobile is not the same thing as the significant mobile revenue Yahoo! needs to generate.
In other words, the company needs more mobile specific ads and content. And that is exactly where Yelp reviews could come in handy for Yahoo!.
Yahoo! still does not share its mobile revenue figures, but it did reveal in its fourth-quarter earnings call that it has 200 million daily active mobile users. In comparison, Facebook says it had 618 million daily active mobile users during that same quarter, with 23% of its $1.33 billion in mobile revenue.
Clearly Yahoo! needs to up its mobile offerings, but the company just spent a billion dollars to acquire Tumblr, so chances are unlikely that it has a few billion more sitting around to acquire Yelp.
So who should buy Yelp?
How about Apple (NASDAQ: AAPL)?
Apple has already been making moves away from even distantly relying on Google (NASDAQ: GOOG) for anything. At the WWDC this week, Apple mentioned that Google’s biggest competitor, Microsoft’s Bing, is integrated into iOS 7. Apple's Siri is already an alternative to Google Search, and it uses sites like Yelp to answer certain questions. It is expected that the new iOS 7 update will better integrate Yelp and Apple Maps.
Google in turn responded this week to reports that it is in the process of acquiring Waze, an Israeli GPS based community-contributed live-time map program. The combination of Google's and Waze's data would compete against Yelp’s offerings. Likewise, an alliance better integrating Yelp and Apple Maps would compete fairly against the Google-Waze team.
A potential Apple-Yelp acquisition and complete integration would benefit both companies and help improve multiple offerings. Overall, Yelp has a great future ahead, with promising returns in the “reviews” business.
The other major player in Web 2.0 reviews is Angie’s List. The site allows users to share their experiences with local professionals in service industries such as home improvement contractors, medical care, and automotive.
Named after Angie Hicks, who co-founded the company nearly two decades ago, Angie's List has nearly doubled in value since going public in November 2011 at $13 per share. Its current market capitalization is about $1.5 billion.
Angie's List first-quarter 2013 revenue was $52.2 million, an increase of 68% over the same period the year previous. Membership revenue in the first quarter of 2013 increased 47% to $14.6 million. Service provider revenue was the largest component of total revenue at $37.5 million and the fastest growing with a 78% growth rate year-over-year. Service provider revenue includes revenue from advertising contracts and fees from e-commerce transactions. Advertising revenue was $32.9 million in the first quarter of 2013, an increase of 89 percent compared to the prior year period and e-commerce revenue was $4.7 million, an increase of 24 percent year-over-year. However, in spite of all the revenue growth, and scaling back in marketing expenses, the company still suffered a net income loss of $7.9 million.
Unlike Yelp, there are no exciting rumors of a possible acquisition of Angie’s List by a bigger name company. Why the lack of love for Angie?
The company is not a new start-up. The company was started in 1996. It went public when it needed the funds to grow bigger. The lack of more substantial growth in both geography and membership is disappointing. Plus, the company is not map-based, nor does it need to be. Because the company is heavy on home improvement contractors that visit the customer, not the customer to the contractor, Angie’s List just doesn’t require map-based offerings. (It doesn’t matter where the plumber’s office is located, just that he is in the same town, and provides good service. The company would need to be map-based if you actually visited the plumber.) And that is one of the key features that makes Yelp so desirable to other companies.
Long story short, if you want to make money off other people’s business and opinions, stick with Yelp. If you need the name of a good plumber, look for one on Angie's List.
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Erin McBride has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. 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!