Commentary

Yelp Analyst Sees Profit Driver In Paid Leads

Paid Leads product could add about $150 million annual in revenue by 2018, according to Macquaries Securities Analyst Tom White. He writes in a research note that the evolution of theRequest a Quote feature in Yelp's Paid Leads offering, expected to roll out no sooner than the second half of 2017, will become a key development in the company's success.

For Yelp, of course, that means success for small-and-medium sized businesses that have not typically felt the need to buy and run advertisements on the platform.

"Even assuming a likely conservative $15-$20/lead, we estimate a paid lead product could drive 15-20%+ revenue upside (at high margin) for YELP within its first 12 months post full roll-out," White wrote.

Smith also wrote that an update on the analysis found slightly lower ad coverage for national advertisers and those with multiple locations compared with the equity firm's initial August data. He did highlight an increase in adoption by the National Retail Federation's top U.S. multi-location retailers. Some 29% of the listings on the first page of search results in the Yelp platform when running sample queries had “Request a Quote” functionality.

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Smith is not the only Wall Street analyst who is seeing Yelp deliver on some interesting advertising opportunities for SMBs.

In a research note published Nov. 28, 2016, RBC Capital Markets Analyst Andrew Bruckner wrote: "We believe the 40% Local Ad Rev growth is reasonably sustainable and see in Yelp a robust local Advertising & Transactions platform with rising strategic value."

Yelp reported third-quarter revenue of $186 million -- exceeding Baird Equity Research estimates of $184 million and guidance of between $180 and $184 million, driven primarily by local ad revenue outperformance, and more specifically, accelerating ad revenue and account.

Baird Analyst Colin Sebastian wrote in a research note that Yelp has made "impressive strides with local monetization, particularly through deeper advertiser relationships and platform integrations, despite increased competition from large-scale players such as Google and Facebook."

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