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Mobile Ads Will Bolster Yelp Inc (YELP) Share Price

(By Ashit Gulati) Yelp (NYSE: YELP) is one of the largest business directories and is rapidly turning into a search engine for online users that need services from local businesses. The company is fairly successful in growing its local ads business; however, many believe it still needs to monetize its resources more efficiently in order to bolster its revenues.

Yelp has successfully capitalized on display ads to monetize its present website; however, it is now making serious efforts to monetize the mobile platform as the increasing demand for smart phones promises consistent growth in revenues. Here, we will try to assess the opportunities presented by the mobile platform and how Yelp can incrementally develop on this in order to drive its future revenues.

Mobile Ads: A Huge Opportunity

Recently, the Internet Advertising Bureau published that internet advertising experienced an exponential growth during the fiscal 2012 as the total revenues increased to a record $37 billion. In addition, research firm Forrester projected that ad spend on internet enabled mobile devices will account for approximately 30% of the total online ad spend in the U.S. by 2018. Similarly, Gartner predicts that global Mobile Ad revenue will surpass $11 billion by the end of this year. Furthermore, it predicts that from 2011 to 2016, the growth rate witnessed for Ad revenues may even top 400%. Below are the Key drivers that may spur this exponential growth in Mobile Ad revenues

  • Rapid growth in internet enabled devices: The growth in smartphone installed base stood at 35%, where as tablets grew at around 120% during last year. According to IDC, smart devices will hold close to 85% share in the connected devices category by 2017.
  • Increasing online traffic through internet enabled smart devices: Tablets still trail smart phones, as they account for only 30% of the smart devices; however, they represent 40% of total page views through internet enabled smart devices. Moreover, mobile phones are now propping up higher internet traffic relative to traditional personal computers, which is leading to relatively more page views
  • Large mobile screens encourage Display Ads:  Gradual increase in smart phone screen size coupled with large display panels of tablets can support more display Ads. Screen size of mobile devices are only expected to increase, which will result in users expending more display and video content. Hence, we can expect higher Ad budgets for mobile devices.

Mobile Monetization to Drive Yelp’s Stock

Yelp is well positioned to capitalize on this opportunity as it offers a huge listing of Ads. According to the valuation offered by Trefis, the brand ads division is the second highest contributor to its overall revenues and adds 11% to Yelp’s overall share value. During the last year, this division has reported a robust growth rate of 16% as the revenues grew from $16 million during 2011 to $21 million last year. The robust growth achieved by Yelp was primarily due to the introduction of its new mobile app.

During the first quarter of 2013, it was reported that approximately 30% of Yelp’s well over 100 million unique users used their internet enabled mobile devices in order to access the services on offer.

The company recently posted that more than 35% of its Ad impressions were supported by mobile devices. Furthermore, approximately 45% of searches made on Yelp are through internet enabled smart devices. As its mobile app now supports display Ads, hence, going forward investors should not be surprised if Mobile Ads become its premiere revenue driver.

I believe, Yelp can add another $3.5 million to its overall revenues through its mobile platform. In order to do so, 30% of its monthly unique users (36 million) should generate 2.2 billion page views (300 page views a month per user). If the company charges $1.5 per thousand impressions, then it can add close to $3.5 million in revenues through this platform. However, if Yelp can manage to charge a higher RPM, subsequently we may witness a huge upward rally in its stock price.

(205)

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