Why it Makes Sense to Buy This Web 2.0 Stock

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Yelp’s stock price has corrected over 35% in the last one month. This is largely due to Yelp (NYSE: YELP) reporting 3Q 2012 earnings with positive growth in active local accounts (up 82% year over year) and a customer repeat rate of 72%. It has also seen a strong upward trend in app downloads, mobile usage, and new reviews. Also, the new Apple iOS 6 integration will help it get more traffic to its search engine.

Yelp remains a market leader in user-review websites, with over 30 million reviews (+49% year over year) as of 2Q 2012. Yahoo! (NASDAQ: YHOO) is not investing heavily in its 'Local' division, which gives Yelp room to further increase its share of the market. Other industry peers such as Google (NASDAQ: GOOG), Foursquare, and Groupon are limited to those who have "checked into" an establishment or purchased and used one of their promotional offers. Although Google Hotpot has the advantage of Google’s leading search engine, Yelp’s power of community discussion with those who have rated/reviewed a place provide it a defensive shield against the bigger and richer company. 

Below are some of Yelp's key growth factors, poised to generate good revenue streams.

Qype Acquisition

With its strong presence locally, Yelp is expanding its footprints in Europe with the recent acquisition of Qype for ~$50 million. Qype is the leading European local review site, operates in 13 countries, and generates about 2 million reviews per month. This will add around 15 million unique visitors to Yelp’s existing base of 78 million. This was an excellent move for the company, as it eradicates a strong competitor in two of its most important markets, i.e. Germany & the UK, and also speeds up Yelp's penetration in new geographies. The acquisition of Qype is expected to add about $6 million in revenue by 2013, besides the significant boost in traffic and improved market share. 

Smartphone/ Tablet Market

I see the rapidly expanding mobile market as a favorable opportunity for the company to further increase its user base. 3Q 2012 results show that Yelp’s mobile apps were used on 7.2 million unique mobile devices on a monthly average basis. To enhance this experience, the company has added various features such as check-in, comments & likes, photos in all search results, and an "About Me" tab. With 45% of all Yelp searches conducted on mobile devices in the previous quarter, this platform acts as a booster to the company's revenue streams in the future. The addition of mobile advertising within the mobile Yelp app, which is set to launch by the quarter end, will further boost the company's share of earnings as the global mobile advertising market is expected to grow at 64% in 2015 (as per IDC).

Yelp's new integrations

The new integration with the upcoming Apple iOS 6 release as a local business recommendation engine on the new maps will serve as a positive factor for Yelp's business growth. Additionally, Yelp is now integrated with iPhone’s Siri, so combining efforts will help drive more traffic to the search engine. Yelp is now also on GPS systems in certain brands of cars, such as BMW and Lexus, which will continue to drive city traffic growth. 

Another area of scope is Yelp's merging with Microsoft’s Bing to advance local search. This means that its business aspects have been merged with Bing's local business pages, which will help the company to serve its customers in an efficient way.

To sum up, Yelp is continuing its market gain plans with the recent launches in 8 new markets, including Denmark, Finland, Norway, and Helsinki. These new additions bring the total active market count to 96. Targeting the Asian market, Yelp has recently landed in Singapore. I can see a potential upside in stock as these steps provides Yelp with a robust opportunity to leverage strong growth in new geographies and revenue generation in the existing ones. Also, the Qype acquisition will serve as a positive catalyst for Yelp to monetize international users.


ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Google. Motley Fool newsletter services recommend Google and Yahoo!. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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