Yelp Reports Wider Loss as Marketing Expenses Surge

Yelp Inc. (YELP), a website that lets users review businesses ranging from plumbers to pet shops, reported a wider first-quarter loss amid surging expenses aimed at helping the company grapple with competition from Facebook Inc. (FB)

The first-quarter net loss widened to $9.83 million, or 31 cents a share, compared with a loss of $2.75 million, or 19 cents, a year earlier, the company said today in a statement. Revenue rose 66 percent to $27.4 million.

San Francisco-based Yelp is spending more on sales and marketing to widen its user base and woo local advertisers aiming to reach reviewers. The company is facing more rivalry with Google Inc. (GOOG) and Facebook, projected by EMarketer Inc. to control almost 40 percent of the U.S. online display-advertising market by 2014. Yelp isn’t among the top five.

Yelp’s market capitalization of $1.4 billion is a ’’very aggressive valuation for a company that launched eight years ago, never reported a profit and faces growing competition for local ad spending,’’ said Jon Burgstone, a professor at the University of California, Berkeley.

Costs jumped 92 percent to $37.1 million, outpacing revenue. Money spent on marketing, the largest expense, increased 67 percent to $18.8 million. Sales head count increased almost 50 percent from the previous year, Rob Krolik, Yelp’s chief financial officer, said in an interview.

Sydney to Stockholm

“We’re rapidly expanding our sales force, and that ultimately drives our revenue,” Yelp Chief Executive Officer Jeremy Stoppelman said in an interview. “We’re also investing significantly in new markets, and much of that is being spent overseas.”

The company raised $107.3 million in an initial public offering March 1, joining the ranks of new companies that are aiming to benefit from demand for social-media stock. Shares of Yelp, co-founded by Stoppelman and Russel Simmons in 2004, have increased 54 percent since the debut. They climbed 2.6 percent to $23.16 at the close today in New York.

The company has ramped up efforts to grow outside of major U.S. cities and debuted last quarter in 11 new markets, including Sydney and Stockholm. It’s also promoting technology that lets consumers use Yelp anywhere. Mobile applications were accessed on an average 6.3 million devices a month in the first quarter, the company said.

Even as costs mount, more users are coming the site and adding more reviews. Reviews increased 59 percent to 27.6 million, while average monthly unique visitors grew 53 percent to 71.4 million.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.