Today there is a growing importance of online review sites in the consumer decision making process. A Merchant Warehouse infographic released last year revealed that 72% of consumers trusted online reviews for their decisions. The study found that 90% of the visitors to online review site Yelp (NYSE: YELP) were influenced by the reviews they found on the site. Another research by BCG reported that businesses who made use of their Yelp accounts saw an average increase of $8,000 in annual revenues.
Yelp’s first quarter revenues grew 66% over the year to $76.4 million, ahead of the market’s expectations of $75 million. Loss per share of $0.04 was narrower than the previous year’s loss per share of $0.08 and was also better than the market’s projected loss of $0.06 per share.
By segment, local revenues grew 67% to $65.2 million and brand advertising revenues grew 57 % to $7.5 million. Other revenues improved 56% to $3.8 million. International revenues accounted for 3% of the quarter’s revenues.
Despite rising revenues, Yelp’s profits are evasive. Yelp’s continuously rising sales and marketing and product development expenses eat into their margins. Sequentially, Yelp’s revenues grew a modest 8%, but over the same period, sales and marketing expenses grew 16% to $45.12 million and product development expenses increased 18% to $13.98 million.
Among operating metrics, cumulative reviews grew 44% over the year to 57 million. Average monthly unique visitors to their site were up 30% to 132 million with mobile users growing to 52% to 61 million. At the end of the quarter, Yelp’s active business accounts grew 65% to 74,000.
For the current quarter, Yelp expects revenues of $85 million-$86 million with an adjusted EBITDA of $11.5 million-$12.5 million. Yelp expects full year revenue of $363 million-$367 million with an adjusted EBITDA of $56 million-$60 million. The Street was projecting revenues of $85.4 million for the quarter and $358.9 million for the year.
Yelp’s Market Expansion
Meanwhile, Yelp continued to expand their product and market reach. During the quarter, Yelp entered into strategic partnerships with Yahoo! and YP.com to include local data from Yelp into their search results. Further, they are also working with mapping service providers and Apple Maps to integrate local search that can be integrated with several car navigation systems.
Earlier this week, they released a free reservation system to compete directly with online dining reservation services provider, OpenTable (Nasdaq: OPEN). Released under the name Yelp Reservations, the service will let restaurants in the US, Canada, Ireland, and UK take reservations from the portal for free, as long as they maintain a Yelp profile page. Last year, Yelp had acquired reservation service provider SeatMe and this new service leverages that acquisition. The move is an attempt to compete directly with players like OpenTable who charge a reservation fee from the restaurants when reservations are made through their site. Yelp is hopeful that restaurant owners will not only keep their profiles updated to ensure more accurate information on the restaurant’s page, but also end up buying into Yelp’s additional paid for services.
Recently, Yelp also announced growth in the Latin American region with the launch of Yelp Argentina. Yelp released the web portal along with free iPhone and Android applications and their suite of business owner tools in the country. Argentina is the 27th country in which Yelp has expanded their operations. During the quarter, Yelp also began operations in Mexico and Japan.
Their stock is trading at $55.53 with a market capitalization of $3.98 billion. It touched a high of $101.75 in March this year.
Yelp vs. OpenTable
Yelp’s recent addition of the reservation system is an all out battle with reservation services provider OpenTable. OpenTable, which charges restaurants a fee for all reservations made through their system, saw revenues grow 18% this year to $53.8 million this quarter, in line with the market estimate. EPS for the quarter came in at $0.31 compared with the Street’s expectations of $0.30.
By segment, reservation revenues grew 27% over the year and brought in 64% of the quarter’s revenues and subscription revenues grew 13% over the year. International expansion is also growing strong as OpenTable recently crossed the milestone of 40 million reservations in the international markets and 3 million restaurant reviews for these regions. International revenues grew 29% over the year to $7.8 million and revenues from North America grew 17% to $46 million.
For the current quarter, OpenTable expects revenues of $54.7 million-$56.3 million with an EPS of $0.43-$0.48. The Street was looking for an EPS of $0.35 for the quarter. OpenTable expects to end the year with revenues of $221.9 million-$228.1 million and an EPS of $1.81-$1.96. The market was projecting an EPS of $1.36 for the year.
During the latest quarter, OpenTable expanded their offerings to include mobile payment services. Launched as a pilot in the San Francisco market, OpenTable was pleased with the market’s response to the service. They plan to release this service in additional markets in the coming quarters.
OpenTable’s stock is trading at $64.00 with a market capitalization of $1.51 billion. It touched a high of $87.48 in June last year.
But, while OpenTable keeps adding restaurants and services like mobile payments to their menu, I think Yelp will be able to deliver a better model to their customers. By signing up with Yelp’s profile page, business owners will be able to avoid the costly reservation fees that is attributable to OpenTable while continuing to attract traffic driven by the reviews on Yelp’s site. Yelp Reservations is more focused on the truly local and smaller restaurants. In exchange, Yelp will benefit from added focus that the merchants will place on the information on their profile page. Meanwhile, Yelp’s recent tie-ups will get them more easily on the Map and on results from search engines.