A Few Reasons Why Yelp Should Continue Growing

Yelp delivered solid growth in the first quarter, and its moves indicate that it won't be stopping soon.

Jul 1, 2014 at 3:00PM

Yelp (NYSE:YELP) has seen rapid growth in its business. Yelp's last quarter revealed tremendous growth on the back of increasing user metrics, reviews, and business accounts. . However, Yelp shares haven't been appreciating as fast as the company's revenue is increasing, primarily due to criticism that it is still unprofitable. But, Yelp is making huge strides to get better and has been able to maintain its momentum.

Also, Yelp is looking to move into new markets such as restaurant reservations, providing competition to the likes of Google (NASDAQ:GOOG) (NASDAQ:GOOGL). A closer look at Yelp's performance and strategies reveal a number of positives that could help the company get better going forward.

Stunning growth and solid moves
Yelp delivered a stunning 66% increase in its revenue to $76.4 million in the first quarter. This was fueled by cumulative customer reviews that grew approximately 46% year-over-year to 57 million . An increase in customer reviews attracted more businesses, as a result of its active local business accounts being up 65% from last year to 74,000. Moreover, Yelp has integrated SeatMe's technology, which it acquired last year, and is making good use of it to expand its market into the restaurant reservations space.  

Yelp is now looking to establish a stronger position in the market through a free Yelp Reservations service, which will allow restaurants to take bookings without any fee. However, restaurants will need to "claim" their Yelp profile page, and it should be noted that Yelp is using SeatMe's technology to power this platform. . 

With this move, Yelp has made its service more attractive to restaurants as compared to rival OpenTable, which is basically a middleman between consumers and restaurants. OpenTable has a network of 30,000 restaurant-partners in the U.S., and it is also present overseas. Hence, this aggressive move by Yelp to increase its presence in online marketing will help it gain more share against the likes of OpenTable and Google.

Google is making forays into the restaurant bookings business. Earlier in May, Google acquired restaurant website builder Appetas to strengthen its position in the restaurant bookings industry. Appetas provides website templates for small businesses in the restaurant industry, allowing them to keep up-to-date menus and making websites compatible with mobile devices. Appetas' staff will be joining Google, adding to the talent pool of the search giant. 

Moreover, Google already has certain features that could threaten Yelp's move into online reservations. For example, Google tied-up with Dimmi last year to allow customers to make reservations on mobile. Using Google Search and Google Maps, users can access menus, photos, and reviews of local restaurants, and finally book a table according to their preferences. The Appetas acquisition strengthens Google's capability in online booking. So, it is important for Yelp to continue bringing new features to remain in the game.

Some more catalysts that will drive growth
Yelp is also building partnerships with the likes of Yahoo! and YP.com. In addition, the company already has relationships with Microsoft's Bing search engine and Apple Maps. These strategic partnerships will provide Yelp with better growth opportunities. It will be able to attract a broader pool of business owners. Also, Yelp is consistently finding new ways to attract more customers. It recently integrated Booker into the Yelp platform, which will enable consumers to book spa and salon appointments directly via yelp.com. 

Moreover, Yelp is enhancing the mobile experience by rolling out new features. The company has added the ability to add photos through mobile. This is logical as Yelp is witnessing strong engagement across the mobile platform. Nearly 35% of new reviews came through mobile in the first quarter, and about 60% searches were executed through smartphones and tablets. Moreover, average monthly mobile unique visitors were up 52% year-over-year to 61 million in the first quarter. 

Apart from making its platform better, Yelp is also diversifying geographically. It recently launched its services in Mexico and Japan, expanding its business to 26 countries across the globe.

The bottom line
As we saw, Yelp's business is growing very fast. The company is looking to sustain this momentum with new platform features. Moreover, according to analysts, Yelp's annual earnings growth estimate for the next five years in an impressive 72%. So, investors should think of using Yelp's pullback in 2014 as an opportunity to buy more shares of this high-growth play.

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Ayush Singh has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), Google (C shares), Yahoo, and Yelp. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Microsoft, and Yahoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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