Despite Yelp's (YELP) inability to turn a profit since going public in the Spring of 2012, as shown here, some Wall Street analysts and pundits still remain bullish on the stock. Wall Street analysts who see significant upside for Yelp often base their opinion on the questionable logic that the company's future is bright because of the large amount of potential for local advertising revenue that still remains untapped by the company. Investors may want to question this logic since it is unclear whether these analysts and pundits understand fundamental issues that seem to exist within Yelp's business model and how the Federal Trade Commission's (FTC) recent decision on Google's (GOOG) search algorithm might negatively impact Yelp.
Yelp's Questionable Business Model:
Wall Street analysts who see potential for Yelp often point to the fact that only approximately four percent of the company's listings are actually paying customers (as described here). The questionable logic that follows is that 96 percent of the listings then could become paying customers and therefore Yelp's potential for future revenue growth is significant. Unfortunately, these analysts may have failed to consider that Yelp's business model seemingly prevents it from monetizing a significant amount of its listings. This is even after recognizing that some of Yelp's listings are geographic locations, and not businesses (for example, Yelp has reviews for places like "Lincoln Road" which is a street in Miami).
When analyzing future potential advertising revenue, investors may want to first consider that Yelp has been around for more than just a few years. More specifically, the company has been in existence since October of 2004. Despite having over eight years of experience trying to monetize local advertising revenue (during a period when competition was scarce or non-existent), Yelp has only been able monetize a very small fraction of its listings today. As competition increases from larger companies such as Google, Facebook (FB), and smaller rivals such as FourSquare, investors and analysts may want to ask themselves why they believe Yelp can increase its advertising revenue moving forward, especially in light of its eight year track record of generally being unprofitable and ability to only monetize a small fraction of listings during a period when competition was significantly limited. More discussion of the competitive landscape for Yelp can be found here.
Source: http://seekingalpha.com/article/1112491-yelp-on-track-to-potentially-become-the-myspace-of-online-review
Yelp's Questionable Business Model:
Wall Street analysts who see potential for Yelp often point to the fact that only approximately four percent of the company's listings are actually paying customers (as described here). The questionable logic that follows is that 96 percent of the listings then could become paying customers and therefore Yelp's potential for future revenue growth is significant. Unfortunately, these analysts may have failed to consider that Yelp's business model seemingly prevents it from monetizing a significant amount of its listings. This is even after recognizing that some of Yelp's listings are geographic locations, and not businesses (for example, Yelp has reviews for places like "Lincoln Road" which is a street in Miami).
When analyzing future potential advertising revenue, investors may want to first consider that Yelp has been around for more than just a few years. More specifically, the company has been in existence since October of 2004. Despite having over eight years of experience trying to monetize local advertising revenue (during a period when competition was scarce or non-existent), Yelp has only been able monetize a very small fraction of its listings today. As competition increases from larger companies such as Google, Facebook (FB), and smaller rivals such as FourSquare, investors and analysts may want to ask themselves why they believe Yelp can increase its advertising revenue moving forward, especially in light of its eight year track record of generally being unprofitable and ability to only monetize a small fraction of listings during a period when competition was significantly limited. More discussion of the competitive landscape for Yelp can be found here.
Source: http://seekingalpha.com/article/1112491-yelp-on-track-to-potentially-become-the-myspace-of-online-review
No comments:
Post a Comment