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Yelp’s Growth Increasingly Relies On Its Success With Mobile Ads

Quick Take

  • Yelp is expanding its local ads business; however, it needs
    to grow its brand ads revenues by monetizing its mobile
    platform. It has started offering display ads on its mobile
    platform recently.
  • Mobile ads spend will increase to $24.5 billion
    globally by 2016, and represent 29% of the total online ad
    spend in the U.S. by 2018.
  • Mobile display ads revenues can increase Yelp’s brand ads
    revenues by 4.5% in 2013, and will be a key growth driver going

Yelp (

) is one of the biggest local business listing directory in the
U.S., and is fast becoming a de facto search engine for users who
wish to make informed decision about availing services from
businesses in their neighborhood. Although Yelp has been successful
in expanding its local ads business by inorganic and organic route,
it still needs to monetize its properties more effectively to
increase its overall revenues. While Yelp has been using display
ads to monetize its websites, it is in the process of monetizing
its mobile platform for revenues. In this article we explore the
mobile ads opportunity and how Yelp can monetize its mobile
platform through display ads.

Check out our complete analysis of Yelp

Mobile Ads – Opportunities Galore

According to the Internet advertising Bureau (IAB), Internet
advertising experienced a double-digit growth in 2012, for a record
$37 billion in revenues. Mobile ads led this growth as revenues
grew by 9% to $3.4 billion in 2012. Research firm Forrester
predicts that ad spend on smart mobile devices (SMDs) will
represent 29% of the total online ad spend in the U.S. by 2018.
Additionally, Gartner has predicted that worldwide mobile ad
revenue will exceed $11 billion in 2013, and that the growth rate
for ad revenue will exceed 400% during 2011-2016.((
Gartner Worldwide Mobile Advertising Revenue

, January 17 2013,


The drivers behind this explosive growth in mobile ads spend

  1. Increase in smart device ownership: While the smartphone
    installed base increased by 35%, the tablet installed base
    increased by over 120% in 2012. IDC has predicted that SMDs will
    capture 83% of the connected devices segment by 2017.
  2. Higher web traffic from SMDs: Although tablets represents
    less than 30% of smart mobile devices, they represent over 40% of
    total mobile page views. Additionally, mobile devices are logging
    in higher web traffic than traditional PCs, resulting in higher
    Internet page views.(( Tablets trump smartphones in global
    website traffic, March 6 2013,
  3. Increased display area on devices to improve ad spend:
    Smartphone screen sizes are increasing and a tablet’s screen
    space for display ads is more than double than that of
    smartphones. Going ahead, we expect that users with bigger screen
    will consume more display and video content on these devices.
    Thus, we expect that ad budget for mobile devices will increase
    and this will further translate into convergence in revenue per
    impression (

    ) on mobile devices and PCs.

Mobile Monetization Is Key For Yelp’s Growth

With rapid growth in mobile advertising revenues due to higher
penetration and use of SMDs by consumers and the use of more
personalized and location-based advertising by mobile advertisers,
Yelp can monetize its mobile platform as it has one of the largest
listings of local ads. Yelp’s brand ads division is the second
largest division and makes up ~11% of Yelp’s estimated value.

Over the past year this division has grown at a robust rate of
over 16% from $17 million in FY11 to $21 million in FY12. One of
the key contributors to this growth is the adoption of Yelps’
mobile platform and its mobile app. Yelp reported that 30% of its
102 million unique visitors (~10 million monthly unique mobile
users) used its mobile devices for accessing its services in

We currently project that Yelp’s monthly unique visitor will
increase from 86 million in 2012 to over 120 million by the end of
2013. Assuming that 30% of unique visitors are mobile users, we
have accounted for $8 million in search ads revenue from mobile in

Yelp reported that 36% of its ads impressions were served on
mobile devices in Q1 FY13, and its mobile penetration is on the
rise as almost 45% of all Yelp’s searches were via mobile. With the
mobile app now running display ads, this is likely to become a
major revenue driver for Yelp’s brand ads division. Yelp can
monetize its mobile platform using display ads as 36 million (30%
of expected FY13 unique visitors) monthly unique users can
generate 2.19 billion page views based on a conservative estimate
of 300 page views per month per user. These 2.19 billion page views
could generate at least $3.4 million in revenues for Yelp in 2013,
if it can charge the current display ads rate of $1.50 per thousand
impressions (

) to advertisers. However there could be meaningful upside to our
forecast if Yelp is able to charge higher ad rates for mobile
users, the number of page views per month is higher or if more
users visit the site than we currently anticipate.

We currently have a $19 Trefis price estimate for Yelp,
which stands nearly 35% below its market price.

Understand How
a Company’s Products Impact its Stock Price at Trefis


About the author

Mystic Maggie

All of the Mystic Maggie Posts are RSS Reader Feeds from around the web. All copyright remains with the original publisher. No copyright is claimed or intended. Where supplied, links back to the original article are included.

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