From reviews to billions: advertising revenue and services as a path to growth

Today's analyzed company is one of the leading players in online business reviews and ratings. Since its inception in 2004, it has undergone a dynamic development and has established itself as a key platform for users looking for recommendations on restaurants, services or retail outlets. Its business model has evolved over the years, with a particular emphasis in recent periods on the service segment, which brings more stable revenue and less dependence on fluctuations in the foodservice industry.

The financial results show that the company has been able to adapt to changing market conditions and monetize its platform effectively. Revenues reached record levels in the last year and the growth in advertising revenues in the services segment confirms the correctness of the strategic direction. In addition, acquisitions and investments in new technologies signal a drive for further expansion and innovation. In the following lines we will take a closer look at the results of the last quarter, key trends and factors that could influence the future development of the company.

Company performance

$YELP is an American company that operates a website and mobile app focused on publishing reviews and ratings for local businesses. The company was founded in 2004 in San Francisco by former PayPal employees Jeremy Stoppelman and Russell Simmons. The impetus for its creation was Stoppelman's desire to find online recommendations for local doctors, which led him to the idea of creating a platform for sharing reviews of local services.

The original Yelp concept was based on an email system for recommending businesses among friends, but it soon became clear that users preferred writing and reading public reviews. This change in direction led to a rapid growth in the platform's popularity. In 2005, the company received a $5 million investment from Bessemer Venture Partners and another $10 million from Benchmark Capital a year later. By 2010, the number of reviews on the site reached 4.5 million and the company's revenue was approximately $30 million.

Yelp focuses on providing a platform where users can share their experiences with local businesses such as restaurants, stores, home services and many more. In addition to reviews, Yelp also offers features such as table reservations through Yelp Guest Manager and the ability to order food online. Businesses can advertise and interact with customers on the platform, increasing their visibility and attracting new clients.

Over the years, Yelp has expanded its reach to many countries around the world. In 2009, it launched its services in the United Kingdom and Canada, followed by France, Germany, Austria, Spain and the Netherlands. In 2012, the company entered the Asian market by launching a service in Singapore. Expansion has been supported by acquisitions, for example in 2012 Yelp bought its largest European competitor, Qype, for $50 million.

Yelp became a publicly traded company on the New York Stock Exchange in 2012. In the following years, it continued to expand its services and features, including the introduction of a "Public Services and Government" section in 2015 that allows users to rate and review government agencies. The company also experimented with consumer alerts for restaurants with poor hygiene standards, helping to improve public awareness of service quality.

Despite its successes, Yelp has also faced criticism, particularly regarding its practices in extracting revenue from businesses reviewed on its platform. There have been accusations of unfair practices, such as highlighting negative reviews for businesses that do not pay for advertising or, conversely, suppressing negative reviews for paying clients. The company has denied these allegations and said it strives to ensure the objectivity and reliability of its reviews.

In 2023, Yelp had over 287 million reviews and more than 60 million unique visitors on mobile devices per month. The company continues to innovate and expand its services to provide users with the best possible platform to share their experiences with local businesses while helping those businesses grow and thrive.

Why is Yelp worth paying attention to?

Yelp, a well-known platform for business reviews and ratings, has recently been looking to diversify its business and solidify its position in the market. Although the company has faced challenges in the restaurant industry, it has managed to achieve steady growth by shifting to a broader range of services.

One of the major trends in Yelp's strategy is the shift in focus to the service segment, which is less volatile than the restaurant business. Due to economic fluctuations and changes in consumer buying behavior, growth in the restaurant and retail segments has slowed. As a result, Yelp is focusing on services such as automotive repairs, appliance installations, and miscellaneous crafts where the demand for reviews and recommendations is growing.

The company is also working to optimize its advertising model. Thanks to the increase in clicks on service-related ads, Yelp has managed to increase the average cost per click, which has had a positive impact on overall revenue. Yelp is also adjusting its algorithms to make ads more targeted and effective for advertisers, which contributes to better monetization of the platform.

Another important step was the recent acquisition of RepairPal, which specializes in automotive repair price estimates and connects customers with auto repair shops. This investment strengthens Yelp's position in the service space and expands its offering for users looking for reliable vehicle repair information.

Despite market challenges, Yelp has maintained a solid financial performance. Increasing revenue in the services segment is helping to offset fluctuations in the restaurants, and the company is also improving its profitability through more efficient cost management. The outlook for the period ahead suggests continued growth, making Yelp an interesting entity for investors and analysts following the technology sector.

How was the last quarter?

In the fourth quarter of 2024, Yelp achieved total revenue of $362 million, up 6% year-over-year and beating the high end of its expected range by $10 million. This growth was driven primarily by an increase in advertising revenue in the services segment. The company's net income was $42 million, a significant improvement from $27 million in the same period in 2023. Earnings per share increased to $0.62 compared to $0.37 in the prior year period, and net income margin increased four percentage points to 12%.

Adjusted EBITDA was $101 million, up $5 million year-over-year and beating expectations by $12 million. Adjusted EBITDA margin remained stable at 28%. Yelp generated $71 million in cash from operations and had $318 million of cash, cash equivalents and marketable securities at the end of the quarter. The company also repurchased approximately 1.7 million shares for a total of $62.5 million during the period.

For the full year 2024, Yelp achieved record revenues of $1.41 billion, an increase of 6% over the previous year. Net income increased 34% year-over-year to $133 million with a net profit margin of 9%. Adjusted EBITDA increased 8% to $358 million, $15 million higher than the November 2024 guidance and $33 million higher than the original February 2024 guidance. Adjusted EBITDA margin remained stable at 25%.

The Company's results reflect the varying performance in each category. The Services segment performed strongly, with advertising revenue from these businesses up 11% year-over-year to a record $879 million. The home services sector was a significant contributor, with annual growth of approximately 15%. Conversely, the restaurant, retail and other services (RR&O) segment faced adverse market conditions and competition from order and delivery service providers. As a result, advertising revenues from these businesses declined by 3% to $470 million. The number of paying advertisers declined by 5%, but average revenue per advertiser reached record levels.

The number of clicks on ads increased by 6% year-on-year, while the average cost per click (CPC) remained stable. Improvements in advertising technology and an increase in service projects acquired through paid search contributed to the growth. The company also saw a significant shift in sales through the self-service channel, where revenue grew 15% over the prior year. On the other hand, the multi-branch segment showed stagnation, which was attributed to weaker R&D & O performance.

In terms of user engagement, Yelp continued to expand its review database. It added 21 million new user reviews in 2024, bringing the total number of reviews to 308 million. Despite a 4% decrease in unique app users due to lower restaurant traffic, the app was able to increase website traffic - the mobile version saw a 3% increase and the desktop version saw a 1% increase.

The company expects continued growth in 2025 with forecasted revenues between $1.47 billion and $1.485 billion and adjusted EBITDA between $345 million and $360 million. Yelp continues to invest in innovation, launching more than 80 new features and updates in 2024, and continues to develop AI-based technologies to make it easier to connect users with quality local businesses.

Long-term results

Analyst expectations

Based on 6 Wall Street analysts who have offered 12-month price targets for Yelp over the past 3 months. The average target price is $40.40 with a high forecast of $48.00 and a low forecast of $34.00.

Yelp vs. Google: Which marketing option is best for small businesses?

In today's digital world, online reviews and marketing on platforms like Yelp and Google are key for small and medium-sized businesses (SMBs) to attract new customers. Both Yelp and Google have strong user bases that offer businesses great opportunities to make their offerings more visible, but deciding which platform is better for a particular business is not easy.

Yelp has a solid presence in the U.S., attracting more than 38 million unique mobile users and more than 91 million visitors to its website each month. Google, on the other hand, attracts billions of users each month, which means that on the face of it, the platform has a decisive lead in the number of searches. However, even though Google attracts a larger number of users, Yelp profiles itself as a user-centric platform with a specific intent.

The main difference between the two platforms is the way people come to them. Yelp users typically come with a specific intent: they are looking for reviews, recommendations, and often planning a specific purchase or visit. This is especially beneficial for businesses that provide services or have a direct relationship to a local market, such as restaurants, home services, hair salons, and the like. Google, on the other hand, is more of a search and orientation tool, even early in the decision-making process.

When we look at advertising options, Google offers a wide range of formats. These can be text ads, product ads, image ads, or special formats focused on apps and phone calls. This flexibility can be advantageous for product sellers because they can directly offer products for purchase through advertising. Yelp, on the other hand, offers simple display ads that appear when businesses search on the platform. While this offering is more limited, it can be effective for services where good reviews and reputation matter. Yelp has also recently begun offering an ad model with no long-term commitment, meaning small businesses can easily try ads without a large financial commitment.

When it comes to reviews, Yelp clearly has the stronger position. Users of the platform have the ability to write detailed reviews about businesses, which has a strong influence on the decision-making of others. Yelp is known for its active check against fake or misleading reviews, which increases the credibility of reviews. Businesses with high ratings on Yelp typically attract more customers who have a specific intent to purchase. On the other hand, Google, while it also collects reviews, does not have as strict a control as Yelp and often encounters problems with fake reviews. However, reviews on Google are displayed directly in the search engine, which means they are easily accessible to customers and can influence their decision as early as the search stage.

The important conclusion is that it is not necessary for small businesses to choose between these two platforms. Yelp is ideal for attracting customers with high purchase intent and higher revenue, which is beneficial for local businesses that offer services or experiences such as restaurants and nightclubs. Google, in contrast, is great for increasing visibility and getting on the map for the general public. The combination of both platforms, with an emphasis on SEO-optimized ads on Google and a quality profile on Yelp, can help small businesses maximize reach and conversions. The key is to focus on both platforms, manage reviews, and invest in advertising based on business type and target audience.

So for small businesses, a combination of both platforms can yield the best results, with Google providing broad visibility and Yelp attracting customers who have a specific intent to buy something.

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