Why Yelp’s stock price is soaring
Yelp’s (YELP) stock price is soaring as the company managed to report yet another stellar quarter and beat analysts’ estimates. Importantly, the company is witnessing accelerated growth in its local ad revenue, which in the past had shown signs of a slowdown on account of lower traffic.
Although the company is witnessing slow user growth, it has managed to increase the number of cumulative reviews on its platform. Meanwhile, Yelp is also witnessing strong adoption of its mobile app, which is driving higher user engagement. This, in turn, is expected to boost ad revenues.
What plagued Yelp’s business?
Yelp, which generates its revenues from advertising on its platform from local and national brands, relied heavily upon Google searches to steer traffic to its website. However, Google (GOOG) was accused of pushing its own reviews over competition by altering search results. This negatively impacted Yelp.
Besides battling Google’s algorithm problem, increased competition from large rivals including Facebook (FB), Amazon (AMZN) and Priceline (PCLN) took a toll on Yelp’s growth. The company’s top line growth slowed down, and it failed to meet Wall Street’s expectations as small business owners didn’t spend much on its platform, citing higher costs and lower return on investment.
However, as more and more consumers are shifting toward mobile, the company has been successful in driving consumers to download its mobile app, which lowers its dependence on Google searches and drives higher engagement.
Given Yelp’s strong 1H16 performance, decline in dependence on Google searches, and reaccelerating local ad revenues, Yelp’s turnaround hopes are gaining steam.