This Thursday, February 5th, internet reviews company, Yelp is set to report its fourth quarter 2014 earnings after the close.  Since 2012, Yelp had reported steady increases in local ad growth, its core business.  However, the company has been extensively looking at international markets for other sources of revenue and expansion of its business.  Aside from international market share, investors will be extensively focusing on Yelp’s other revenue frontier: mobile.  Fourth quarter earnings estimates currently stand at earnings per share of $0.07 on revenue of $108.36 million.  Additionally, full year 2014 estimates are seen coming in at $0.12 earnings per share on revenue of $376 million.

Yelp Inc Earnings Preview

Yelp’s local ads and international growth will be widely watched

Currently, local ads represent $267 million of Yelp’s total revenue, or 84.7%.  Looking at local ad growth from the third quarter 2013 to third quarter 2014, local ad sales expanded massively and Yelp saw business accounts grow 51%.  As of the third quarter 2014, Yelp has 86,200 local business ad accounts and investors will be anxiously waiting to see if the company was able to further grow its business accounts.

Yelp
http://www.slideshare.net/LudovicP/yelp-3q-2014-earnings-slides

However, some analysts and investors are worried that Yelp’s local ad business in the US is nearing full maturity and continue to place emphasis on further international expansion to capture new markets.  As the Trefis Team wrote in a Forbes article on the subject, “total addressable market of 73 million local businesses in the world, of which 53 million are present in North America, Europe, and New Zealand.”  Furthermore, the company has recently added its services to Hong Kong and Chile, in an attempt to gain further international footprint and revenue source. During the third quarter, Yelp showed results of international growth of 30% year over year, with an average of 30 million visitors a month.  However, international ad sales only contribute to 30% of its total revenue.  While this is certainly a big chunk of earnings, its traditional local ad sales of 84% of earnings holds more bearing and that is why Yelp continues to attempt to bring its international exposure ramped up.

Yelp Inc Earnings Preview

Cantor Fitzgerald forecasts strong results

Youssef Squali, an analyst at Cantor Fitzgerald, helped maintain high hopes for Yelp ahead of earnings, as the analysts maintained his “buy” rating and $83 price target.  Furthermore, the analysts says the he believes Yelp will post very strong fourth quarter earnings and will see local ad revenue increase to 57% year over year.  Squali also says that its strong advertising core business could eventually attract a larger competitor, in the form of a potential takeover.  However, when talking about the risks to Yelp, the analyst highlighted Google and Facebook as two other “local ad” providers that could make rapid expansion difficult for Yelp.

Overall, Yelp has made some very impressive gains year over year in local ad sales.  Additionally, the company has put tremendous focus on international and mobile expansion, which should help further bolster earnings.

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