Yelp Stock Spikes in August Table of Contents Move to Mobile Gives Reviews Company Advantage Over Google

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Yelp Stock Spikes in August Table of Contents Move to Mobile Gives Reviews Company Advantage Over Google Street Fight's monthly insights on the market potential of hyperlocal businesses September 2012, Issue 6 Yelp Stock Spikes in August Table of Contents Move to Mobile Gives Reviews Company Advantage Over Google Yelp Stock Spikes in Yelp (NYSE:YELP) beat market expectations twice relationship with consumers through its application, August in August, announcing better than expected and thus begin to take substantive market share Facebook Shows Signs of earnings for Q2 and seeing a 23% surge in its stock from the search giant. Local Push price following the expiration of the company’s lockout period. Many expected Yelp’s price to dip as It’s in this context that Google acquired Frommers’ Payments Race Heats Up inside investors cashed out large equity holdings (à travel guide business earlier this month from With Major Partnerships la Groupon (NASDAQ:GRPN) and Facebook publisher John Wiley & Sons (NYSE:JW.A) for a \ (NASDAQ:FB)), but the company’s leadership sold reported $25 million. The acquisition, which comes Investor Perspective – virtually zero stock and short-sellers were forced to a little less than a year after the company snapped Private Markets cover bets by buying stock, adding to the spike. up local reviews company Zagat, builds on its Investor Perspective – While the surge says more about investor discipline continued push into the content business, Public Markets than long-term value, Yelp is one of the few particularly in the local space. We see Google’s hyperlocal companies that have shown sustained push into local content as part of a wider mobile Acquisition Spotlight: Yext growth over the past six months with its stock price strategy that looks to integrate local information Sells Felix Business to up 47% since its March 1 public offering. deeply into Google-owned services like its mobile IAC’s CityGrid Media assistant product Google Now. In order to build the Part of Yelp’s success is due to growth in key integrated search and discovery products that *** trends that underlie its model – namely, the shift in succeed on mobile, Google needs to have deeper What is Street Fight? local search from desktop to native applications on control over not only which content is surfaced but mobile devices. That’s an important indicator for how consumers interact with it, making ownership Street Fight is a media, the company because Yelp’s competitive position in a necessity. the mobile market is far stronger than on the web, events, and research where the traditional search engines still dominate While Frommers’ traditionally played in the travel company focused on the discovery. On mobile, and particularly in local, rich vertical, the type of atomize location-specific business of hyperlocal content – reviews, photos, menus etc. - is an content, which Google will leverage is largely content, commerce and essential part of the search experience, making the agnostic to use case in the local web. The question technology. The Street link referral model, in which a search engine directs for Google will center on whether it can adapt the Fight website publishes users to third-parties, largely uncompetitive. company’s editorial structure to fit the needs and news, commentary, case Instead of relying on Google's (NASDAQ:GOOG) realities of Google’s business model. While Zagat algorithms to feed users to its site, the mobile and Frommers’ premium content may add some studies, and how-to environment allows Yelp to build a direct value to Google’s product, we believe that articles to help the sustainable hyperlocal content models must be hyperlocal ecosystem Hyperlocal Struggles After IPOs rooted in solid user-generated environments. achieve sustainable Yelp Continues To Outperform Successful hyperlocal companies like Foursquare business models. and Yelp have managed to scale quickly because Yelp% Angie's%List% Groupon% 30.00 they focus on developing environments in which, *** users generate content rather than static editorial structures in which content costs continue to 25.00 The Hyperlocal Investment increase with size. Report is a subscription- Stock Price Stock only newsletter. Purchase 20.00 Street Fight View: Look for Yelp’s user base to individual copies for $99 continue to grow as it benefits from a partnership 15.00 with Apple that gives it a prominent position on the apiece, or sign up for an iPhone 5 coming out this month, and continues to annual $799 subscription. 10.00 expand internationally. Margins will likely stay the Click here to subscribe. same as the company pours capital into sales and marketing costs to enter new markets, but once the 5.00 land grab tapers off, we believe the company is well-positioned to upsell existing clients on value- 0.00 added services like food delivery. Mar Apr May June July Aug © 2012 Hyperlocal Industries The company will likely be able to undercut competition by packaging these services with its existing subscription offerings -- a key product as the company moves from selling search ads to providing a complete local marketing tool set. Over the next 4-6 months, investors should keep an eye on merchant engagement in international markets and watch for forthcoming mobile monetization products from the company, which will have a big impact on revenue projections down the road. ! Facebook Shows Signs of Local Push Local Search and Discovery Provides Big Opportunity for Social Network Facebook (NASDAQ:FB) strengthened its hyperlocal marketing product in August, simplifying the self-serve ad creation tool used by small and medium-sized businesses while pressing users to integrate location deeper into content. With pressure continuing to mount from investors to accelerate revenue growth, the social network appears to be exploring its still-untapped hyperlocal opportunity. In the months leading to its IPO in June, COO Sheryl Sandberg was outspoken about the role local advertisers would play in Facebook’s growth even as the company’s consumer facing product remained dormant. August saw the first substantial movement by the company in the hyperlocal space since it rolled out a self-serve offers product to select businesses across the US in June. Right Borrell Associates projects local spend on Local Social Spend: 2011 -2016 social media to nearly triple by 2016 with a 21% COGR. $3,500 With local social spend projected to exceed $8.3 billion by 2015 and nearly 70% of SMBs already $3,000 using Facebook, the company is well positioned to $2,500 generate substantial revenues from a well-executed local play. To fully leverage its opportunity $2,000 however, Facebook cannot simply target its way to success. It will need to expand its consumer-facing (Millions) Media Social on $1,500 hyperlocal offerings in order to increase its hyperlocal inventory. That is, content with local $1,000 intent, not simply a tacked-on geo-tag. The check- in, for example, is so valuable not simply because it $500 gives brands access to a consumer’s location, but $0 because it identifies a user as a “local consumer.” Spend Local Project 2011% 2012% 2013% 2014% 2015% 2016% The Instagram acquisition, which was approved by Source: Borrell Associates the FTC in August, will likely play an important role in the company’s local strategy. Earlier this month, case that monetizes on mobile extremely well, and the photo-sharing service retooled its application to with mobile set to eclipse desktop in total local leverage the massive amount of latent location data search queries, the play would mesh well with the already being collected with shared content. Unlike companies growing mobile audience. Facebook’s other content formats – status updates, wall posts, likes etc. – photos are deeply tied to the As we’ve discussed in previous editions of this places where they are taken, and as marketing report, local search as a fulfillment tool is quickly content, are becoming important metadata in local becoming commoditized as the consumerization of consumers’ search and discovery process. distributive computing makes accessing and organizing large location datasets feasible for Search is one of the big potential revenue streams smaller companies. We see marketing dollars for Facebook, and it began to move into the wider shifting away from traditional search toward space with the release of “sponsored results” discovery-oriented services that enable marketers earlier this month. With the company’s consumer to reach consumers earlier in the decision cycle. facing search product still in its infancy, the value Whereas objective data like name, address, and for advertisers remains unclear, but local discovery phone number traditionally drove value for may prove to be an easier space to disrupt as marketers, subjective information like social companies like Yelp have already broken Google's content and rich data like photos will become the (NASDAQ:GOOG) ubiquity among users. Local key to the value proposition in local search and search provides the type of end-of-the-funnel use- discovery. © 2012 Hyperlocal Industries Street Fight View: While we believe that Facebook has a large opportunity in the local space, do not expect to see substantial revenue generated until the company improves its consumer-facing offerings in order to build up its hyperlocal inventory. Instagram will provide a boost, but we believe the acquisition of a proven hyperlocal player like Foursquare could quickly position Facebook as a major target for marketing spend. ! Payments Race Heats Up With Major Partnerships Square, PayPal Score Big Partnerships, Placing Pressure on Loyalty Plays 2.75% transaction fee with a flat monthly rate. August was a big month for the connected LevelUp, a Boston-based startup that raised $9 payments space as major players nailed down key from Deutsche Telecom in early August, erased partnerships, effectively pushing the space into the processing fees altogether to focus its monetization mainstream.
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