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Yelp’s Looking Here for a Revenue Boost

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Request-a-quote feature

Yelp (YELP) could be facing growing competition from Facebook (FB), Twitter (TWTR), Snap (SNAP), and Alphabet’s (GOOGL) Google for online advertising budgets. Specifically, the local advertising category is one area where competitors will likely fight the most to undo Yelp.

In their most recent comment on Yelp, Credit Suisse analysts cited the potential of Yelp’s RaQ (request-a-quote) feature, saying it could transform the company’s top line. The analysts see RaQ increasing the appeal of Yelp advertising to small and medium businesses, which are known for their fondness for local ads.

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For this reason, analysts estimate that RaQ could bring in $50 million–$210 million in additional revenues to Yelp in 2018. Yelp itself is targeting revenue of $1.0 billion in 2017, which means that its top line would grow to a range of $1.05 billion–$1.21 billion by 2018—if Credit Suisse’s prediction for Yelp’s RaQ holds true.

$77.4 billion up for grabs

RaQ is a great tool for Yelp subscribers to engage local businesses on the review site. If RaQ turns out to be popular among small and medium local advertisers, it could help Yelp increase its market share in the US (SPY) digital advertising market, which is projected to grow to $77.4 billion in 2017, as compared to $72.0 billion for television ads, according to eMarketer. The above chart illustrates this market projection.

Soft guidance

Although Yelp beat expectations in 4Q16, it gave softer guidance for 1Q17, raising questions about its ability to hit its own $1.0 billion annual revenue target this year. The risk that Yelp’s management faces is that any failure to deliver on its top-line promise could cause investors to dump the stock, which would, in turn, pile more pressure on Yelp’s management.

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