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Value Line has initiated coverage of Yelp, Inc. (YELP) in its flagship product, The Value Line Investment Survey. Yelp connects people with local businesses. Its users have contributed a total of approximately 36.0 million cumulative reviews of almost every kind of local business, including restaurants, boutiques and salons to dentists, mechanics, plumbers, and more.

These reviews are written by people using Yelp to share their everyday local business experiences, giving voice to consumers and bringing “word of mouth” online. The information these reviews provide is valuable for consumers and businesses alike. Approximately 86.3 million unique visitors have used the website, as of December 31, 2012. Its mobile application was used on approximately 9.2 million unique mobile devices, on a monthly average basis during the final quarter of last year. Businesses of all sizes use the company’s platform to engage with consumers at critical moments, primarily when they are deciding where to spend their money. The business revolves around three key constituencies: the contributors who write reviews, the consumers who read them, and the local businesses that they describe.

The site competes for consumer traffic with traditional, offline local business guides and directories, as well as with other online providers of local and web search. The areas by which they go head-to-head include the reliability of content, breadth, depth and timeliness of information, and the strength and recognition of the brand. Yelp also competes for a share of local businesses’ overall advertising budgets, namely traditional, offline media companies, and other Internet marketing providers. Various marketers in this sector are typically evaluated based on the following criteria: the size of the consumer audience, effectiveness of its advertising solutions, a pricing structure, and brand recognition. That said, the website’s main source of competition can be broken down into two distinct categories, Offline and Online. The former are generally comprised of existing advertising relationships with local businesses. The services provided by competitors range from yellow pages listings to direct mail campaigns, along with advertising and listings services on local newspapers, magazines, television and radio. Meanwhile, the latter are made up of internet search engines, such as Google (GOOG), Yahoo! (YHOO), and Microsoft’s (MSFT Free Microsoft Stock Report) Bing, which represent potential threats as industry peers. In addition, a host of popular online service providers and review websites have begun to throw their hats in the ring, as well.

The stock has performed well of late. Indeed, it has advanced over 60% since its inception in March of 2012. Although the broader markets have been on quite an upward run, the issue’s performance is largely thanks to strong quarterly top-line results and investors’ excitement about the company’s potential. However, accounts should remain mindful that Yelp has a short trading history and online businesses can be a bit volatile, meaning a small bottom-line setback could result in a hefty price drop. Nevertheless, the popularity of smartphones and tablets suggest greater advertising revenues and enhanced advertising and marketing promotions may be just around the corner. What’s more, Yelp’s ample cash on hand (approximately $95 million as of March 31, 2013) and lack of debt are bonuses, providing the business with plenty of financial flexibility ahead.

All told, subscribers interested in this online business information provider are advised to consult Value Line’s quarterly reports for Yelp, Inc., as well as any supplemental reports and relevant articles as important news items arise.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.