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Health of Yelp’s Advertising Business in Focus

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Advertising contributes nearly 90% to Yelp’s top line

Yelp (YELP) generates the bulk of its revenues from advertising. The company aims to distinguish itself from the competition by delivering local advertising solutions.

In 1Q17, Yelp’s advertising revenues rose 24.0% YoY (year-over-year) to $177.0 million. Overall revenues in the quarter totaled $197.3 million. Yelp generated more than 89.7% of its overall revenues in the most recent quarter from advertising.

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Yelp’s paying advertising accounts jump 17%

Not only is Yelp growing the dollar value of its advertising business, it is also drawing more advertisers to its platform. The company said the number of its paying advertising accounts increased 17.0% YoY to 139,000. However, the growth of its advertising accounts decelerated from 24.0% in 4Q16 and 34.0% in 1Q16.

The chart above shows the trend for Yelp’s paying advertising accounts for the last five quarters.

Yelp’s escalating competition

The slowdown in Yelp’s advertising account growth can be linked to two factors. First, its robust growth is decelerating as the base expands. Second, the slowdown could be a consequence of escalating competition in local advertising markets.

Among the e-commerce providers, Amazon (AMZN) and eBay (EBAY) are trying to court small businesses to sell and advertise on their sites. Digital advertising powerhouses Facebook (FB) and Google, an Alphabet (GOOGL) company, are also keen to recruit advertisers among small businesses. As a result, these factors present tough competition for Yelp.

However, the reported double-digit growth rate of its advertising accounts is an important signal showing Yelp’s resilience amid stiff industry competition.

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