Yelp Shares Jump as Sales Top Estimates on Mobile Growth

Yelp Inc. shares posted their biggest gain since March 2012 after first-quarter revenue topped analysts’ estimates, helped by an expansion into new markets and a jump in local advertising on its consumer-review website.

The stock climbed 25 percent to $31.67 at 10:59 a.m. in New York after earlier rising 26 percent, the biggest intraday gain since March 2, 2012, the first trading day after Yelp’s initial public offering. Shares of the San Francisco-based company have more than doubled since the IPO.

In its earnings report yesterday, Yelp also gave a forecast for second-quarter sales that exceeded analysts’ projections. Chief Executive Officer Jeremy Stoppelman has forged partnerships with companies such as Apple Inc. and ramped up marketing spending to woo local advertisers, which made up 79 percent of revenue last year. At stake is a local online ad market that may rise to $41.1 billion in 2017 in the U.S., from $23.1 billion in 2012, according to researcher BIA/Kelsey.

“The integration of Yelp’s platform into Apple’s iOS remains a driving force in both growing users, as well as expanding the advertising base for Yelp’s customers,” Brian Blair, an analyst at Wedge Partners Corp. in New York, wrote in a note to clients last month. “This has been a core piece of our positive thesis on Yelp’s fundamental growth story.”

Sales Jump

First-quarter sales climbed 68 percent to $46.1 million, the company said yesterday in a statement, topping the $44.5 million average analyst prediction compiled by Bloomberg. The first-quarter net loss narrowed to $4.8 million, or 8 cents a share, from $9.8 million, or 31 cents, a year earlier. Analysts on average were projecting a loss of 6 cents.

Second-quarter revenue will be $52.5 million to $53.5 million, the company said. That compares with the average analyst projection of $50.4 million, according to data compiled by Bloomberg.

Total reviews on Yelp’s sites, where consumers rate and comment on local businesses such as coffee shops, hair salons, pet shops and plumbers, increased 42 percent to more than 39 million, while average monthly unique visitors grew 43 percent to about 102 million, Yelp said.

The company expanded search ads to its mobile application in the fourth quarter and display ads in the first three months of the year, something that will continue to expand customer reach “significantly,” according to Blair. About 45 percent of Yelp searches originated on the mobile app in the first quarter, the company said.

While Yelp previously showed ads on its desktop website and mobile browser, its customer base is increasingly logging into the site through its mobile application. More than 75 percent of Yelp usage will be on mobile apps in the next 12 to 18 months, Blair estimated in a February note.

‘Big Opportunity’

Yelp charges customers for a package of advertising impressions, and then distributes the ads across its mobile browser version, desktop website and mobile app.

“Still a relatively very small percentage of local merchants in these markets are paying customers of Yelp’s,” Tom White, an analyst at Macquarie Capital USA Inc. in New York, said in an interview. “Some people view that as a big opportunity.”

In the first quarter, 36 percent of local ads were shown on mobile devices, Yelp said yesterday, an increase from 25 percent in the fourth quarter. The app was used on about 10 million unique mobile devices on an average monthly basis in the recent period.

Yelp entered its 21st country -- New Zealand -- yesterday, and has also started selling ads in France and Spain, Stoppelman said on a conference call following the report.

The company is eventually aiming to have 30 percent to 40 percent of revenue come from non-U.S. markets, Chief Financial Officer Rob Krolik said on the call. International markets contributed 6 percent of sales in the first quarter.

The company said it acquired Qype GmbH, Europe’s biggest local-review website, in October for about $50 million to expand outside its U.S. base and step up competition with Google Inc. and Facebook Inc. for users and advertisers.

Before it's here, it's on the Bloomberg Terminal.