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Why Yelp’s Expenses Are Rising

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Yelp continues to invest in product development

Yelp’s (YELP) costs and expenses rose last year as the company continued to invest in product development and marketing to drive growth and diversify its revenue sources. Yelp currently draws revenue from three major sources, which is how it has divided its segments: Advertising, Transaction, and Other services.

Yelp’s R&D (research and development) costs could keep rising this year, as the company intends to focus on driving usage of its services and improving product experience in the restaurant category. Although Yelp disposed of its restaurant food ordering service, Eat24, last year, the company still views the restaurant category as a high-growth area that it could tap into to drive revenue growth.

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Yelp boosted R&D spending by over 30%

Yelp spent $48 million on R&D in 4Q17, representing a 30.1% increase YoY (year-over-year). R&D was the fastest-rising component of Yelp’s expenses in 4Q17.

For Facebook (FB) and Google parent Alphabet (GOOGL), R&D costs rose 18.8% and 19.4% YoY, respectively, in 4Q17. Twitter’s R&D spending increased 33.7% YoY, and Amazon’s (AMZN) R&D rose 40% YoY. At Amazon, expenses are rising as the company invests in new products and features in its retail, digital entertainment, and cloud computing businesses.

Yelp spent over $111 million on marketing

Yelp invested $111.1 million in marketing in 4Q17, 18.7% more than a year prior. Marketing spending made up the largest portion of Yelp’s expenses in the quarter. Yelp’s overall operating expenses rose 16.4% in 4Q17 and fiscal 2017. In 4Q17, operating expenses totaled $202 million.

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