No Law of Large Numbers for Yelp

No Law of Large Numbers for Yelp


Feb. 6, 2014 3:46 p.m. ET

For a small companyYelp YELP +18.92% commands some big numbers.

For instance, there’s the 67% revenue-growth rate year over year that the online-review site has averaged each quarter since it went public in March 2012. There is also the site’s 120 million average monthly visitors in the fourth quarter, up 39%. And 53 million of those are coming from mobile, up 60% in the fourth quarter.

There’s another big number: 17.5 times. That’s the multiple of 2014 revenue at which Yelp’s stock trades. It makes Google‘s GOOG +1.47%Google Inc. Cl AU.S.: Nasdaq$1159.96  +16.76 +1.47%Feb. 6, 2014 4:00 pm Volume (Delayed 15m) : 1.91MAFTER HOURS$1161.75  +1.79 +0.15%Feb. 6, 2014 7:59 pm Volume (Delayed 15m): 33,392P/E Ratio31.75Market Cap$384.90 BillionDividend YieldN/ARev. per Employee$1,110,73002/06/14 Google Asks French Court to Su…02/06/14 Mistrial Declared in Intellect…02/05/14 Google Reaches Settlement in E…More quote details and news » 5.6 times and even Facebook‘sFB -0.05% at 14 times look cheap. And they’re established Internet powerhouses also targeting the same local business segment Yelp does to increase ad sales.


Yelp’s opportunity is significant. Janney Capital estimates the local online advertising market in the U.S. at north of $130 billion. Yelp is a well-known brand that made only $233 million in revenue last year. The company also noted in its earnings call late Wednesday that only 4% of its revenue came from international markets that accounted for about 21% of traffic to the site.

But growth won’t come cheap. Yelp sells ads through a mix of a self-service model similar to Google’s and a “full-service” model using a sales force. The company doesn’t disclose how much revenue comes from each method, but said it plans to invest more in the business in the coming year to capture more market share. It projects earnings before interest, tax, depreciation and amortization to jump by about 90% in 2014 following last year’s sixfold surge.

Despite the fact that Yelp is going up against big, rich rivals, Wall Street mirrors these high hopes, expecting revenue growth to average 43% over the next three years. As a business, Yelp does have good growth potential. Its stock looks like it’s already there.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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