I was not too keen on shares of Yelp Inc. (NYSE: YELP) -- the online review service best known for its consumer critiques of restaurants and other local businesses -- when the company went public in March. All of the hype surrounding the offering set up an unreasonable opening valuation.
But I’m taking a second look at Yelp now that the stock has pulled back 50% from its post-IPO high.
Consumers are increasingly turning to social media for advice and suggestions. In one recent survey, 64% of the respondents said they go online to search for customer or user reviews, and 87% said positive information read online reinforced their decisions to purchase products or services. Yelp is one of the leaders in this space, with 71.4 million average monthly unique visitors in the March quarter, representing year-over-year growth of 53%. Revenue growth this year is expected to top 57%.
The Yelp IPO priced at $15 a share, above the expected range of $12 to $14, and opened for trading at $22. The stock surged to a high of $31.96 at the end of March before succumbing to profit taking and a big dose of reality. At the high, Yelp’s market cap of $1.95 billion was 14.9 times the 2012 consensus revenue estimate of $131 million.
The disappointing Facebook (Nasdaq: FB) IPO hasn't helped, causing a broad sell-off in shares of a lot of recent tech IPOs. Yelp on Wednesday traded to a post-IPO low of $16.03. With the market cap now down to roughly $1 billion, the forward price-to-sales (P/S) ratio of 7.8 is a little more palatable. On the 2013 consensus revenue estimate of $184.6 million, the P/S ratio is 5.5.
In 2011, Yelp’s revenues rose 74% to $83.3 million, with 70% of total revenue derived from local advertising and 21% from brand advertising. The company plans to expand in its current markets (mainly in the US, Canada, and Western Europe) by increasing the number of users, reviews, and advertisers. It will push into new geographies this year as it builds out its international sales force.
For the March quarter, revenue was up 66.1% to $27.4 million, above the consensus estimate of $25.4 million, driven by 91% growth in local advertising revenue. The number of active local business accounts advanced 117% year-over-year to 27,300, and the total number of reviews topped 27.6 million, representing growth of 59%.
The company added 11 new markets (including eight outside the US) in the latest quarter and is now in 80 markets. Yelp targets markets where the population tops 250,000, and there are approximately 1,000 of these worldwide, according to CEO Jeremy Stoppelman.
With global smartphone shipments expected to top 1 billion by 2015, Yelp obviously sees a large growth opportunity on the mobile side. In the March quarter, Yelp was accessed on about 6.3 million unique mobile devices (up 80% from a year ago); and 40% of Yelp searches were conducted from a handset or tablet, with this figure topping 50% on weekends. According to Stoppelman, Yelp’s mobile ads have even better monetization rates than those on its Website.
With Google (Nasdaq: GOOG) now featuring Zagat reviews (it bought the restaurant guide last year) free of charge as part of Google+ Local, there is some concern about increased competition. Zagat does add useful content to Google+, but it remains to be seen if users are engaged enough to offer their own reviews. And the jury is still out on whether or not the search giant’s fledgling social-networking effort will be able to sustain any real traction over the long term.
Meanwhile, Yelp has a solid user base, plenty of market-expansion potential, and a superior mobile offering.
The first suit was dismissed for lack of evidence; the second suit is nearly identical, but has more evidence.
Basically, the long-standing allegations are that Yelp strong arms merchants to buy advertising. If it declines, it highlights the negative reviews and buries the positive ones -- and, conversely, buries bad reviews for its advertisers.
Yelp of course has consistently denied this. But it makes me wonder. And something about the allegations have a ring of truth,
Yes, but I have personally discussed this with about a dozen small biz owners in both NY and PA. Funny that they are all reporting such similar experiences,
This is my local pizza place. Scroll all the way down to the bottom and click on "filtered reviews." If you go through the trouble of unfiltering them, you will find four highly rated reviews. Now why is that? They don't sound any more "fake" than any of the other reviews on Yelp.
This is a good neighborhood place, and it doesn't even show up in search results for pizza for my town.
Hmmm. Interesting. But you know what, everybody games everything on the Internet. Google itself is a giant game -- if you pay them you magically get better search results. Yes, it seems unfair, but I think it is a business reality.
BTW, this is a good story. Why don't you follow up? Don't let me get in the way, even though I have disclosed that I own shares ;-) A good story would be reward enough for the shares going down.
I have a hard time believing reviews I read online. I know the majority may be sincere and true but it is surly not that difficult to post fake reviews on the Internet. It is much easier to place fake rleviews on the internet than on other popular media like Tv or news papers where there is more accountability.
I think people are interested in rating sites that have a large number of reviews (100s) for each restaurant. So, even if a few are faked, you can get an overall idea of what a place is like.
@ProfR I guess they can't fake all those reviews if they are in the hundreds. It is impossible to be able regulate such sites or monitor the authenticity. So we'd have to be satisfied with an overall impression.
Yes, a large number of reviews give a potential customer a better idea of what a restaurant is like. Also, more reviews allow the site to average the ratings to give you a better idea of the quality overall.
That could very well be the case. Even one very negative review could mean a lot of bad publicity. A merchant would be willing to pay a high price to have that removed. And of course have some positive reviews posted. I have unfortunately had the experience of believing such posts ( not on Yelp) and booking a hotel for a holiday. It was nothing like I expected. This is the reason I don't trust internet reviews that much. I prefer recommendations by friends who have actually been to the establishment concerned. Then again there is also the level of expectation and standard which each of us consider as good. My rating of very good could very well be your ' average' rating. So it all comes down to individual preferences.
So, since it is tough to get recommendations for all hotels/restaurants from friends, does that mean there is still room for groups like AAA which rates hotels and restaurants against a criteria? When I have used the AAA ratings, I have generally found them to be correct.
The value with a service like AAA is that at least you know the ratings are measured against the same stick, Online reviewers are capricious -- and there is no good way to know how they make their evaluations.
One of my pet peeves about online reviews is on sites like Amazon, where someone will give a product a poor rating "because it too so long for it to be delivered." Like UPS or FedEx had anything to do with the product itself?
That is the beauty of Amazon's comments, no filtering no matter how ridiculous the comment is. When Jeff Bezos first let user to leave negative comments on Amazon, many people thought he was crazy. Now it is a common practice. Furthermore Mr. Bezos insisted no filtering on any comments, and believed consumers has the intelligence to use it wisely. I guess he was right.
I am really worried about Yelp's filtering based on Advertisement practice. Boiled it down, Yelp is doing some thing Mafia used to do. It is a disgusting practice. I will stay away from the stock if the allegation is true
I pay the most attention to Yelp reviews where the person has reviewed many restaurants or businesses. Some of these reviewers really get into it and are trying to build a good rep on Yelp.
I just don't trust online reviews. There is always someone who is going to be dishonest about the product no matter what. I would just as soon buy it, try it out, and if I don't like it send it back.
"I would just as soon buy it, try it out, and if I don't like it send it back. "
It doesn't look like the most efficient way to do your shopping. Even some retailers try very hard to make the return as painless as possible, it is still a big hassel to repackage the goods, and drop it at UPS or Fedex.
I don't think you can trust a single review, but if there are a number you can get a sense for what a product or service is really like. Sometimes you can't return it ( like a restaurant) and it helps to have an idea in advance.
I paid no attention to single review. Actually any item with fewer than half a dozen can be manipulated easily either by the site owner, or by the seller. But if there dozens of comments of an item, it is rarely wrong.
I think that online ratings/review websites should have a tool where the review can be verified to keep people from registerng false and/or misleading reviews. Don't know how that would come about, but somebody is boundto create something of that nature soon.
That would be helpful icebreaker. At a minimum, eliminate the filtering and require a valid email. That won't eliminate fake reviews, but it may minimize them.
All I need to throw off a review is a bunch of friends and family to load up a site. Heck, maybe I'll even offer customers a free drink or dessert in exchange for a good review. And think of the havoc my friends and family could create for a competitor.
Yea, you don't have to be a rocket scientist to come up with a scheme to distort the review process -- which is exactly what I bet a lot of businesses do.
It's not scientific, but one way I test the reliability of a site is just by looking at some reviews of places I know myself. If they reflect my own experience, then I'm more likely to trust other reviews.
David Nour suggests business should care more than many do about online rating sites.
Customer comments on rating sites such as Yelp are actually a blessing in disguise. You want them to comment because if they go away and don't say something--good, bad, or ugly--that's when you should worry. If you think of the input as a gift, be savvy enough to develop a loopback mechanism for the comments to actually matter. If they complained about their experience, follow through (a process versus follow up, a transaction) to better understand which aspect of the process failed to impress. Then do something about it and go back to them with an update and ask for another opportunity to re-earn their confidence.
I think it is great in theory -- customer service has always been an importantelement of good business. But there are some people who are just chronic complainers. How do you satisfy them? Is it fair to have people like that drag down a business? And how many small biz owners have the resources to deal with social media 24/7?
Zynga, Yelp and Groupon all hit new lows Monday. Yelp fell below its $15 IPO price in midday trading Monday, closed at $15.20 and fell again today. Right now--it's own to around $14.89.
Can a company that has never been profitable in what--7 years--really turn things around, especially when it depends on search sites like Google, which has reportedly removed links to yelp on portions of it search results in favor of its own local ad results?
@Drivewaygirl: I don't know the specifics behind AllianceBernstein's optimistic view on Yelp. It's a huge money manager (more than $87 billion in long equity assets as of 3/31) and has its highest weighting in the tech sector (21% of the portfolio). The firm's largest tech positions are in the big names (Apple, Google, H-P, Qualcomm, Oracle), but it does take small positions in more speculative names.
I realize AB is a huge investor, but even so, I question why it likes this so much. Maybe it knows something -- like the fact Google plans to acquire it. That would actually make sense.
The current price action certainly doesn't confirm that they know anything we don't. Plus those fund numbers are always out-of-date, for all we know AB is selling today.
The AllianceBernstein filing was this morning and based on the firm's Yelp holdings as of May 31. While AB certainly could be selling today, it tends to be a longer-term investor, as opposed to many tech hedge funds, which are in and out on a weekly or even daily basis. But I agree it probably doesn't know anything we don't.
@Noreen I wonder if Groupon is regretting turning down that $6-billion offer from Google now that its market cap has fallen to that level. It actually traded below $6 billion yesterday. That Groupon CEO is so wacky though he probably doesn't even care.
Speaking of Google, it should make a bold bid for Twitter. I find myself doing more searches on Twitter these days and not turning to Google.
MSNBC reports that a new mobile app provides restaurant patrons with a way to communicate directly with restaurant managers about these negative experiences. The program is called Talk to the Manager, and it allows restaurant customers to essentially text their feedback to the eating establishment's leadership team. Ideally, the restaurant owner can make the necessary improvements, and send the patron an apology; the patron, meanwhile, can skip the process of publishing a nasty, public review on a site like Yelp. However, for many consumers, posting a negative online review is still the more satisfying course of action-even though it can often prove detrimental to the restaurants themselves. The industry-leading reputation management firm Reputation Changer has announced new review suppression services to help restaurant owners protect themselves against this unwanted online publicity.
I think it is only fair that restaurants and other businesses have a way to counteract the negative reviews of a disgruntled customer or even a former employee. Whether Reputation Changer is the answer remains to be seen. But I think they need something.
Recently launched Gripevine.com is an online social media platform for consumer-complaint resolution. It was co-founded by Dave Carroll (creator of Time Magazine's "2010 Top Ten Most Viewed YouTube Video," United Breaks Guitars).
Gripevine takes consumers' various complaints and sends them directly to the company in question via their interactive dashboard platform so they can handle it immediately; eliminating the countless calls, long hours waiting and tons of emails that are unfortunately custom with poor customer service.
@Noreen, given the power that Twitter has wielded in the customer service/complaint area, Grapevine may have a fight on its hands, but imagine two sites dueling it out for the betterment of the consumer. The mind reels!
What's the real value of Yelp or Facebook or similar sites? Data, of course.
Avanade, a business technology solutions and managed services provider, just announced results of a global survey of more than 550 business executives and IT leaders, which reveals the investments companies are making to manage big data are paying off. Eighty-four percent of respondents report big data helps them make better business decisions. And 73 percent of companies have already used data to increase revenue by growing existing revenue streams (57 percent) or creating entirely new sources of revenue (43 percent).
How valid is the daa that Facebook is selling if people create bogus accounts and distort their perceptions to get coupons or deals, or to hide their real feelings from their friends?
that's a huge question. The challenge lies both in protecting the data and interpreting it correctly-identifying the why as well as the what behind it.
Well they may be making fewer decisions based on FB data: A recent poll from Reuters/Ipsos found that 34% of Facebookers said they were spending less time on the site than they were just six months ago. Not only that, but almost 50% of users said that they just spend the same amount of time as they are used to spending.
Boring; one of the worst things that can be said about anything that lives and dies by engagement. Lying, cheating, betrayal of trust - all of these things are terrible, but can be overlooked if there's still some spice left. It's when you find that something has nothing left to offer - that's the kiss of death.
Let's face it - most of your friends are boring when it comes to the written word. There is a very (very, very) short window for giving a damn when it comes to breakfast choices and canine anecdotes.
The latest version of Foursquare now offers recommendations based on location. Smart move because the core check-in feature is stale. I'm surprised Foursquare is still adding roughly 1 million users a month.
Yelp shares finished the week up 25%, including a 12% gain today on big volume of 1.1 million shares. The stock recovered 39% from its post-IPO low of $14.10 from Monday, but is still well off the March 28 high of $31.96.
Yelp shares are surging more than 12% today, trading up to an intraday high of $26.49. The stock continues to rally following last week's solid Q2 earnings report. For the June quarter, revenue advanced 66.8% to $32.7 million, beating the consensus estimate of $30.6 million. Average monthly unique visitors rose 52% from a year ago to 78 million.
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