Is Yelp Headed In The Right Direction?

Chris CrumBusiness

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Yelp, the online review site that businesses love to hate, released its earnings report for the third quarter this week. CEO Jeremy Stoppelman proclaimed it a "great" quarter, but investors weren't buying what Yelp was selling as the company's stock plummeted. The company's business outlook wasn't as good as shareholders hoped, and there's concern about growth maintenance and competition.

Are Yelp's best days behind it? Share your thoughts in the comments.

Yelp's revenue was up 67% year-over-year. Cumulative reviews were up 41% at 67 million. Average monthly unique visitors grew 19% year over year to about 139 million. This all seems pretty good, right? So what's the problem?

The company said it expects Q4 revenue to be in the range of $107 million to $108 million, representing growth of approximately 52% compared to the fourth quarter of 2013. Wall Street was looking for something more like $111 million.

Much of the concern lies with Yelp's ability to compete internationally. Stoppelman said on the earnings call (via Seeking Alpha):

We see a large opportunity internationally and we continue to roll out the yelp playbook in new markets as we plant the seeds for future growth.

We expand geographically by hiring community managers who nurture communities of local writers. Content [rooms] (ph) and consumer traffic which leads to more writers and more reviews. Once the content and traffic grow, we’re able to start monetizing but this process takes time.

For example, we launched in Italy about three years ago and our sales people just began selling in Italy last month but there are recent launches in Choi and Hong Kong, Yelp is now available in 29 countries and in 16 languages.

Even since the call, the company announced its acquisition of German restaurant review site Restaurant-Kritik.

Despite Stoppelman's words of optimism, it's clear that even Yelp itself is concerned about competition internationally, based on how hard the company is pushing for regulation against Google. In addition to becoming an official complainant in the European antitrust battle, Yelp and some other companies recently launched a website and browser plugin aimed at convincing people and regulators that Google doesn't play fair.

But a lot of companies are worried about competition from the search giant. Yelp investors are also concerned about smaller, but substantial players.

Tom Taulli at InvestorPlace writes, "It appears that foreign markets are getting tougher to monetize. After all, there are dominant companies, such as TripAdvisor and Priceline, that have recently entered the restaurant review space. These operators obviously have tremendous brands, marketing resources (with lots of TV commercials) and tremendous leverage from their existing travel platforms. There are already ominous signs that the competition is taking a toll. Consider that Yelp reported a flat quarter-over-quarter performance in international traffic."

Yelp also has some new competition from Groupon, which just launched business pages, which it aims to see surfaced in search engines. Their angle is that businesses can highlight deals that will bring them customers, something Gruopon is already quite good at. Groupon also works with these businesses to craft such deals.

Jennifer Booton at MarketWatch says millennials are "migrating away from review sites" like Yelp, and that, "While macroeconomic factors have had some effect, social media have raised the stakes for the legacy review sites. Consumers are increasingly opting for free reviews and word-of-mouth recommendations from their trusted friends and relatives on social networks like Facebook and Foursquare over more traditional review sites."

She notes that analysts have also expressed concern that Yelp’s revenue growth is too dependent on "noncore sources, such as its partnership with YP.com."

None of this even broaches the fact that a lot of businesses themselves are very critical of Yelp or the shareholders who filed a class action suit against the company over the alleged misleading about the legitimacy of reviews.

Yelp claims to have roughly 86,200 active local business accounts. That's up 51% year-over-year. With Yelp Platform, which the company just added hotels and wineries to, consumers can transact directly with 28,000 businesses. These transactions were recently added to the Yelp business dashboard.

Users contributed about 5.3 million reviews during the last quarter, which Yelp says is the biggest quarterly increase to date. 45% of them were added with mobile devices. It's unclear how many were actually legitimate reviews, as we often see them left by people with ulterior motives.

There are a lot of factors that seem to be working against Yelp, but so far, the company seems to have weathered the storm tremendously. The question is whether or not that will continue, and for how long.

Do you think Yelp is headed in the right direction? Will competition become a bigger problem? Share your thoughts in the comments.

Image via Yelp

Chris Crum

Chris Crum has been a part of the WebProNews team and the iEntry Network of B2B Publications since 2003. Follow Chris on Twitter, on StumbleUpon, on Pinterest and/or on Google: +Chris Crum.