Yelp Progress Continues As Focus On SMB Ads, Request-A-Quote Lift Q1 Revenues
Yelp has been able to follow Facebook and Google's lead on "flexible" ad sales contracts, while CEO Jeremy Stoppelman expressed confidence of the local guide will be unaffected by GDPR issues.
Yelp’s sales team expansion and focus on “non-term” advertising contracts that are more open-ended and flexible for marketers appeared to pay off in Q1, as revenues rose 13 percent.
While the sale of food delivery service Eat24 to GrubHub/Seamless in August for $300 million accounted for a 79 percent drop in transactions dollars, other services jumped 135 percent to $5 million.
The other services number was driven by the acquisitions of Nowait, a mobile app platform that allows restaurants to manage their waiting lists and lets diners get in line remotely, and in-store wifi network provider Turnstyle in February and April 2017, respectively, as well as the growth of Yelp Reservations since a year ago.
But the rebuilding of Yelp’s ad salesforce over the past year has been the primary engine of progress for the company. By the end of 2017, Yelp had transitioned about 40 percent of the salesforce to the non-term contract model. And by the end of Q1, it had close to 75 percent. In terms of headcount of the salesforce, Yelp has gone from 7,000, to 14,000 year-over-year.
“We’ve also heard feedback from the marketplace that flexible or non-term contracts have become more of the norm as evidenced by Facebook and Google,” COO Joseph Nachman said during the Q1 analyst call. “We’ve been testing this model for close to two years now with a small group of reps and really started to accelerate that in Q3 and Q4 of last year.”
There are three things that Yelp has learned during what Nachman called “this testing phase” of the non-term ad sales program.
For one thing, sales reps are able to sell more customers on a monthly basis and Yelp is still retaining its same long-term loyal customers buying under this model.
Yelp is also finding a group of customers that are accepting Yelp advertising on a trial basis or are purchasing seasonally.
“That last group of customers not only provide additional revenue in the short term, but are also activated into the Yelp ecosystem where we can actively market to them and take friction out the process of reactivating into an advertising program,” Nachman said. “We’re in fact seeing a low, double-digit percentage of new businesses in any given month come from a pool of previous advertisers.”
Peter Stabler, a senior analyst covering Yelp for Wells Fargo, called the contract term easing “a positive move” and expects accelerated paying account adds to continue.
“While bears will likely argue that removing contract terms will lead to lower average revenue per paying advertiser and higher churn, we take a different view,” Stabler said in an analyst note. “We’ve long believed that mandatory contract durations have been a material obstacle to the onboarding of small businesses. And though Yelp has eased the original annual terms gradually over the years, we still believe that even a three month commitment likely proved to be a bridge too far for many local SMBs. With a broader roll-out across Yelp’s sales team, we have materially lifted our forecast for paying advertiser accounts based on the no-term implementation.”
Nevertheless, the analyst remains “cautious” on the Request-A-Quote service that Yelp has put large hopes in. That program has been around for years, but has started to come into its own since last spring. Request-A-Quote was previously known simply as “message a business” that allowed Yelp users to ask for a price of services before making a purchase.
“Though we believe the new “structured request” format is a strong addition (which we believe borrows liberally from HomeAdvisor), we still believe the model requires significant changes in order to provide material, incremental revenues beyond today’s monetization of standard cost-per-click budgets,” Stabler said. “This said, we agree the home services opportunity is large and that Yelp’s audience and engagement scale positions the company to benefit from further RAQ product development.”
Yelp CEO and co-founder Jeremy Stoppelman attempted to make the case for Request-A-Quote’s growth during the analyst call.
The company attributed about $23 million in annualized run rate revenue is now coming from Request-A-Quote, Stoppelman said, adding that it’s up from $18 million in December of last year. Also, Request-A-Quote volume was up 90 percent year-over-year.
“We’ve got about 1 million active businesses now, active pros that can participate in Request-A-Quote, so we think that gives us a real advantage in this space,” Stoppelman said. “And Request-A-Quote is a part of our overall – an increasingly important part of our overall home and local strategy. And home and local is really doing quite well. It’s 268 million run rate at this point – sorry, $268 million in revenue, which is up 30 percent year-over-year. So, the home and local services category is just doing fantastic. It’s our fastest growing and largest revenue category.”
As for other services like Yelp Reservations, Nowait, and Turnstyle, Stoppelman sought to position these programs as “medium to long-term investments.”
“We do believe that they are really standalone businesses, that it should generate meaningful revenue once they get up to scale,” he said. “We feel like allowing users to take that next step of booking a reservation or skipping a waitlist or getting onto WiFi, deepens their engagement, deepens the utility of Yelp.
“If you think about how you succeed as an app on someone’s phone, it’s about having high frequency,” Stoppelman added. “All the most popular apps tend to have very high frequency of use, and so that’s why we love the restaurant category. Of course, many of those restaurant users end up going into other longer-tail categories like home and local services that over-index on the monetization side. We see there’s a great business opportunity in the restaurant category for us with these programs, but then also there’s additional money to make by convincing the user to do a search for, say, a plumber or a mover, etc.”
In terms of the numbers, 27 percent more customers were seated via the Yelp Reservations and Nowait programs versus the same period last year.
Those services also buttress ad sales by boosting engagement within the app, an area that Yelp has sought to build up after years of focusing on desktop usage. In offering proof of engagement, Stoppelman said pageviews were up 25 percent in the the app, while reviews grew 22 percent across the board.
Avoiding GDRP Travails
One analyst, probing for signs of possible danger brought up the issue of GDPR, the “General Data Protection Regulation” governing the use of consumer data by marketers and platforms in the European Union. While the latest talk about the regulation, and whether some version of it will make it to the U.S., has tended to revolve around larger companies and Facebook’s issues related to Cambridge Analytica’s targeting of the social network’s members during the 2016 Presidential election.
Stoppelman expressed confidence that Yelp’s business would not be materially affected by the regulations.
“We’re obviously aware of the deadlines and making preparations to be fully compliant,” Stoppelman said. “We don’t have any revenue in Europe. So the stakes for us are somewhat diminished. And we don’t collect data frankly on the scale of a Facebook or Google. So I think that reduces risk. So there’s work to be done, but we don’t see any major impact to the business at this point.”