Yelp (YELP -0.84%) reported its first-quarter earnings on Wednesday, beating analyst estimates on both the top and bottom lines. With a loss per share of $0.04 on revenue of $76.4 million, Yelp delighted investors who were looking for a loss of $0.06 per share on revenue of $75 million.
Yelp is moving in the right direction, toward profitability, narrowing its loss from $0.08 per share last year. The company continues to invest heavily in sales and marketing as it sees a lot of opportunity ahead, depressing earnings short term. Meanwhile, it's partnered with Yahoo! (NASDAQ: YHOO) and Apple (AAPL -1.19%) to increase exposure to consumers without much consumer-facing marketing.
Here are the three non-traditional metrics investors should consider from Yelp's earnings report.
65% growth in active business accounts
Yelp grew active local business accounts to 74,000. That's 7,000 additional businesses advertising on its platform compared to the end of the last quarter, and a 65% increase year-over-year.
Although the results were not quite as strong as last quarter -- when the company added 10,000 new advertisers -- growth is still accelerating year-over-year. In the first quarter last year, Yelp added about 5,000 advertisers and grew local business accounts 63% year-over-year.
Claimed businesses -- businesses that see value in having a presence on Yelp -- grew to 1.6 million, up 45% year over year. Although it claimed business growth is slowing, Yelp is converting more every year. With less than 5% of claimed businesses actively advertising, Yelp has a long runway ahead of it.
What's more, customer repeat rate was slightly higher than usual at 75%, as the company typically retains closer to 70% of its customers every year. It's a strong signal that Yelp's customers see value in its ad products. It also typically costs less to retain a customer than to make a new one, so Yelp should see leverage from this trend.
59% of revenue spent on sales and marketing
Yelp spends heavily on sales and marketing to continue growing its active local business accounts. Last quarter, the company spent 59% of revenue on sales and marketing expenses. That's a slight decline from the 61% of revenue the company spent on sales and marketing in the same period a year ago.
Almost all of the added expense is due to increased headcount. Sales headcount increased 55% year-over-year, as the company expanded internationally and continues to push sales in the U.S.
Yelp also agreed to a strategic partnership with YP that ought to help keep its sales costs (as a percentage of revenue) down going forward as it taps into YP's customer base. YP has over 500,000 customers compared to Yelp's 74,000, and management believes the overlap is fairly small. This move could do a lot to help Yelp continue growing its local active business accounts more efficiently.
30% user growth
Yelp continues to attract new users to its website, growing monthly active users 30% last quarter. That's a significant slowdown, however, from its average growth last year. Growth was better on mobile, growing 52%, and could be partially attributed to its integration with Apple Maps on the iPhone.
Although Apple Maps originally faced a lot of criticism, the iPhone continues to see strong sales -- particularly in markets where Yelp operates -- and Apple Maps is the default mapping application for users. As a result, Apple Maps has over 35 million iPhone users.
Yelp's desktop growth was not as impressive, but that's the nature of Yelp's product. Nonetheless, Yelp partnered with Yahoo! to attract some of its hundreds of millions of users to its website. Although Yahoo!'s share of the U.S. search market has fallen to just 10%, Yelp is similarly integrated on Bing. Additionally, Yahoo! attracts over 800 million visitors every month, reaching more consumers than Yelp does currently.
We'll see if the partnership with Yahoo! improves Yelp's user growth figures next quarter, as the partnership only went live for the last two weeks of the quarter. Yelp may have to consider more consumer-facing marketing campaigns if new users continues to slow.
The bottom line
Overall, Yelp had a great quarter with some excellent indications that its investments in sales are paying off handsomely. The sales team is converting more businesses into advertisers, and the results are clearly shown in Yelp's top line. More importantly, the company is showing that there's leverage in its business model, helped by an improvement in its customer retention rate. Although user growth is slowing, Yelp should be able counteract that trend one way or another. All signs point toward continued strength at Yelp.
