Piper Jaffray Google+ and Yelp reviews comparison study
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Piper Jaffray Google+ and Yelp reviews comparison study Document Transcript

  • 1. C O M P A N Y N O T E A p r i l 1 6 , 2 0 1 4 Yelp, Inc. (YELP) Neutral  Introducing Review Growth for Yelp vs. Google Plus PRICE: US$63.06 TARGET: US$80.00         (10.5x FY15E EV/revenue) Gene Munster Sr Research Analyst, Piper Jaffray & Co. 612 303-6452, gene.a.munster@pjc.com Douglas J. Clinton Research Analyst, Piper Jaffray & Co. 212 284-9488, douglas.j.clinton@pjc.com Travis S. Jakel Analytics Specialist, Piper Jaffray & Co. Changes Previous Current Rating — Neutral Price Tgt — US$80.00 FY14E Rev (mil) — US$355.6 FY15E Rev (mil) — US$489.9 FY14E EPS — US$(0.04) FY15E EPS — US$0.22 52-Week High / Low US$101.75 / US$24.75 Shares Out (mil) 68.9 Market Cap. (mil) US$4,344.8 Avg Daily Vol (000) 4,180 Book Value/Share US$7.06 Net Cash Per Share US$5.56 Debt to Total Capital 0% Yield 0.00% Fiscal Year End Dec Price Performance - 1 Year Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 120 100 80 60 40 20 USD Source: Bloomberg CONCLUSION We are introducing a review count analysis that looks at a snapshot of 950 places in 20 major cities in the U.S. on a weekly basis to measure the consumer review trends between Yelp and Google Plus. While the current data represents only a snapshot, over time we expect the data series will increasingly gain relevance and give us a clearer picture of review growth trends between the two services. While Google Plus is only small part of the Google story, Yelp investors remain focused on review trends given reviews are a key defensible barrier around the Yelp story. • Yelp exceeds Google Plus on reviews and in places reviewed. In our first tracking of the number of reviews on Yelp compared with Google Plus, our data shows that Yelp holds a significant lead in terms of number of reviews compared to Google Plus. Yelp on average has 142 reviews per place. Google Plus, by comparison, typically averages 69 reviews per place. Furthermore of the 950 places we looked at, Google had reviews for 750 of them. Even though Yelp beats Google in both areas, Yelp had a multi-year head start to build out. • Yelp tends to have longer reviews. Looking at 1000 reviews we tend to find that Yelp contains longer reviews than Google Plus. Yelp on average has 784 characters per review. Google Plus, by comparison, typically averages 161 characters per review. A major contributor to a lower character count is that roughly a fourth of the Google Reviews contained no text and only a rating. Yelp in comparison forces reviewers to provide some text along with their rating. • Our take on Google Plus reviews. Google Plus Reviews is largely irrelevant to the Google story. Google makes fractional revenue from reviews within Google Plus. We believe that Google Reviews from Google's perspective is about enhancing the search and map experience instead of generating revenue. • Introducing review tracking for Yelp vs. Google Plus. The current snapshot lays out a foundation from which we can compare and monitor major changes in review growth. We view review growth and quality as a necessity due to Google’s quest to enhance search services. As Google presses forward perfecting the mobile and desktop map and search experience, we view Google Plus Reviews as an up and coming threat to Yelp's platform. RISKS TO ACHIEVEMENT OF PRICE TARGET Risks include changes in local ad market, competition from larger players like Google, and changes in how local consumers interact with businesses. COMPANY DESCRIPTION Yelp is the leading online service for local business customer reviews. YEAR 2013A 2014E 2015E REVENUE (US$ m) Mar Jun Sep Dec FY FY RM 46.1 55.0 61.2 70.7 233.1 18.6x 73.9 83.9 93.0 104.9 355.6 12.2x 105.7 116.2 126.9 141.0 489.9 8.9x EARNINGS PER SHARE (US$) Mar Jun Sep Dec FY FY P/E (0.08) (0.01) (0.04) (0.03) (0.15) NM (0.05) (0.02) 0.00 0.03 (0.04) NM 0.03 0.05 0.06 0.09 0.22 NM Page 1 of 6Yelp, Inc. Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst certification, found on pages 5 - 6 of this report or at the following site: http://www.piperjaffray.com/researchdisclosures.
  • 2. C O M P A N Y N O T E A p r i l 1 6 , 2 0 1 4 Google Reviews vs. Yelp Snapshot of the number of reviews for 950 locations in 20 major cities across the United States. Comparison of the 750 places they both have: Total # of Reviews Google Reviews 51561 Yelp Reviews 106660 Comparison of Yelp 50 places vs. Google 50 places: Total # of Reviews Google Reviews 51561 Yelp Reviews 126174 Sources: Yelp, Google, Piper Jaffray research Page 2 of 6Yelp, Inc.
  • 3. C O M P A N Y N O T E A p r i l 1 6 , 2 0 1 4 Categorical Breakdown of Reviews: Google Reviews and Yelp Below is a categorical breakdown of the 750 places where they both have reviews and what percent each category contributed to the total. Google Number of Reviews Category 4/15/2014 % of Total Restaurants 24919 48.3% Shopping 3629 7.0% Local Services 3884 7.5% Arts & Entertainment 5526 10.7% Beauty & Spas 7184 13.9% Bars / Nightlife 1501 2.9% Automotive 305 0.6% Health & Medical 171 0.3% Public Services & Government 1490 2.9% Home Services 1984 3.8% Active Life 535 1.0% Hotels & Travel 355 0.7% Education 13 0.0% Professtional Services 0 0.0% Professional Services 33 0.1% Religious Organizations 32 0.1% Financial Services 0 0.0% Yelp Number of Reviews Category 4/15/2014 % of Total Restaurants 48391 45.4% Shopping 18515 17.4% Local Services 6365 6.0% Arts & Entertainment 12332 11.6% Beauty & Spas 4351 4.1% Bars / Nightlife 4721 4.4% Automotive 3535 3.3% Health & Medical 1282 1.2% Public Services & Government 4689 4.4% Home Services 446 0.4% Active Life 620 0.6% Hotels & Travel 820 0.8% Education 259 0.2% Professional Services 310 0.3% Religious Organizations 24 0.0% Financial Services 0 0.0% Sources: Yelp, Google, Piper Jaffray research. Page 3 of 6Yelp, Inc.
  • 4. Douglas Clinton, Research Analyst Gene Munster, Sr. Research Analyst Douglas.J.Clinton@pjc.com Gene.A.Munster@pjc.com Income Statement 212-284-9488 612-303-6452 Updated 04/16/2014 ($ in millions, except per share amounts) 2011 2012 Q1 Q2 Q3 Q4 2013 Q1E Q2E Q3E Q4E 2014E Q1E Q2E Q3E Q4E 2015E Local Advertising 58.5 109.2 39.0 44.8 51.2 58.1 193.1 64.3 72.4 81.7 91.0 309.4 95.4 104.0 114.8 126.1 440.3 Brand Advertising 17.7 20.6 4.8 7.0 6.9 9.2 27.9 6.5 7.9 7.8 10.1 32.3 7.0 8.5 8.4 10.9 34.7 Other Services 7.1 7.8 2.4 3.2 3.1 3.4 12.1 3.1 3.5 3.5 3.8 13.9 3.3 3.7 3.7 4.1 14.8 Total Revenue 83.3 137.6 46.1 55.0 61.2 70.7 233.1 73.9 83.9 93.0 104.9 355.6 105.7 116.2 126.9 141.0 489.9 Cost of Revenue 5.9 9.8 3.3 3.9 4.2 4.8 16.1 5.2 5.9 6.5 7.3 24.9 7.4 8.1 8.9 9.9 34.3 Gross Profit 77.4 127.8 42.9 51.1 57.0 65.9 217.0 68.7 78.0 86.5 97.5 330.8 98.3 108.1 118.0 131.1 455.6 Operating Expenses Sales & Marketing 52.9 81.0 26.2 28.5 31.5 35.6 121.8 39.2 43.6 48.4 54.5 185.7 55.0 60.4 66.0 73.3 254.7 Product Development 10.9 18.8 6.4 7.0 9.5 9.1 32.0 9.8 10.2 11.2 11.5 42.8 11.6 12.2 13.3 14.5 51.7 General & Administrative 14.7 23.4 7.0 7.9 8.0 10.7 33.6 11.2 11.3 11.5 12.6 46.7 12.2 12.8 14.0 15.5 54.4 Depreciation & Amortization 4.2 7.2 2.5 2.6 2.8 3.5 11.5 3.7 4.0 4.3 5.0 17.0 5.2 5.5 5.8 6.0 22.5 Stock Based Compensation 4.9 14.9 5.2 5.7 7.0 8.8 26.7 10.5 11.0 11.0 11.0 43.5 11.5 11.5 12.0 12.0 47.0 Other 5.9 1.3 0.1 0.0 0.0 0.1 0.0 0.0 Total operating expenses 93.6 146.5 47.4 51.7 58.8 67.8 225.6 74.4 80.2 86.4 94.7 335.6 95.5 102.4 111.1 121.4 430.4 Income (loss) from operations (16.2) (18.8) (4.6) (0.6) (1.8) (1.9) (8.8) (5.7) (2.2) 0.1 2.9 (4.9) 2.9 5.7 6.9 9.8 25.3 Total other income (expense) (0.4) (0.3) (0.2) (0.1) (0.0) (0.1) (0.4) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Pre-Tax Income (16.6) (19.0) (4.8) (0.6) (1.8) (2.0) (9.2) (5.7) (2.2) 0.1 2.9 (4.9) 2.9 5.7 6.9 9.8 25.3 Income tax expense (benefit) (0.1) (0.1) (0.0) (0.2) (0.5) (0.1) (0.8) 2.0 0.8 (0.0) (1.0) 1.7 (1.0) (2.0) (2.4) (3.4) (8.8) Net income (16.7) (19.2) (4.8) (0.9) (2.3) (2.1) (10.1) (3.7) (1.4) 0.1 1.9 (3.2) 1.9 3.7 4.5 6.4 16.4 EBITDA (1.1) 4.6 3.2 7.8 8.0 10.4 29.4 8.5 12.8 15.4 18.9 55.6 19.6 22.7 24.7 27.8 94.8 PF Net Income (3.3) (1.6) 0.4 3.1 3.1 4.1 10.8 2.9 5.3 6.7 8.3 23.2 8.6 10.3 11.4 13.1 43.4 PF EPS (0.22)$ (0.02)$ 0.01$ 0.05$ 0.05$ 0.06$ 0.16$ 0.04$ 0.07$ 0.09$ 0.11$ 0.32$ 0.12$ 0.14$ 0.15$ 0.18$ 0.59$ Diluted EPS (1.07)$ (0.30)$ (0.08)$ (0.01)$ (0.04)$ (0.03)$ (0.15)$ (0.05)$ (0.02)$ 0.00$ 0.03$ (0.04)$ 0.03$ 0.05$ 0.06$ 0.09$ 0.22$ Fully-Diluted Shares 15.3 64.0 63.7 64.6 65.5 68.9 65.7 71.0 72.5 73.0 73.5 72.5 72.9 73.2 73.6 74.0 73.4 2011 2012 Q1 Q2 Q3 Q4 2013 Q1E Q2E Q3E Q4E 2014E Q1E Q2E Q3E Q4E 2015E Metrics Local Advertising 73% 87% 82% 77% 80% 71% 77% 65% 62% 60% 57% 60% 49% 44% 40% 39% 42% Paying Accounts (000) 45 51 57 67 72 81 89 102 95 107 117 126 143 132 Y/Y 64% 62% 61% 68% 60% 57% 55% 52% 50% 45% 42% 40% Local Business ARPU $872 $872 $895 $867 $899 $898 $922 $893 $930.00 $890 $889 $913 $884 $921.00 Y/Y 11% 9% 11% 2% 3% 3% 3% 3% -1% -1% -1% -1% Brand Advertising Revenue 47% 16% 20% 23% 17% 84% 35% 35% 13% 13% 10% 16% 8% 8% 8% 8% 8% Other Services Revenue 270% 10% 25% 88% 55% 55% 55% 30% 10% 12% 12% 15% 7% 7% 7% 7% 6% Total Revenue 74% 65% 68% 69% 68% 72% 69% 60% 52% 52% 48% 53% 43% 39% 36% 34% 38% Gross profit 73% 65% 70% 68% 68% 72% 70% 60% 53% 52% 48% 52% 43% 39% 36% 34% 38% EBITDA -80% -507% -437% 398% 270% 476% 541% 165% 65% 92% 81% 89% 130% 77% 60% 47% 70% Operating income 70% 16% -53% -70% -9% -63% -53% 25% 274% -108% -251% -45% -150% -362% 4876% 240% -621% Net income 77% 15% -51% -57% 15% -61% -47% -23% 60% -104% -190% -69% -150% -362% 4876% 240% -621% PF EPS -63% -89% -115% -4845% 1136% -1122% -765% 493% 53% 91% 89% 95% 192% 92% 69% 56% 85% Expenses Cost of Revenue 7.1% 7.1% 7.1% 7.1% 6.8% 6.8% 6.9% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% Sales & Marketing 63.6% 58.9% 56.8% 51.8% 51.4% 50.5% 52.3% 53.0% 52.0% 52.0% 52.0% 52.2% 52.0% 52.0% 52.0% 52.0% 52.0% Product Development 13.0% 13.6% 13.9% 12.6% 15.5% 12.9% 13.7% 13.3% 12.2% 12.0% 11.0% 12.0% 11.0% 10.5% 10.5% 10.3% 10.6% General & Administrative 17.7% 17.0% 15.2% 14.3% 13.1% 15.2% 14.4% 15.2% 13.5% 12.4% 12.0% 13.1% 11.5% 11.0% 11.0% 11.0% 11.1% Total Operating Expenses 112.4% 106.5% 102.8% 93.9% 96.1% 95.9% 96.8% 100.7% 95.6% 92.8% 90.3% 94.4% 90.3% 88.1% 87.5% 86.1% 87.8% GAAP Tax Rate 0.6% 0.6% 0.9% 35.9% 28.1% 2.6% 9.1% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Margins Gross Margin 92.9% 92.9% 92.9% 92.9% 93.2% 93.2% 93.1% 93.0% 93.0% 93.0% 93.0% 93.0% 93.0% 93.0% 93.0% 93.0% 93.0% EBITDA Margin -1.4% 3.3% 6.9% 14.1% 13.2% 14.7% 12.6% 11.5% 15.3% 16.6% 18.0% 15.6% 18.5% 19.5% 19.5% 19.7% 19.3% Operating Margin -19.4% -13.6% -9.9% -1.1% -2.9% -2.7% -3.8% -7.7% -2.6% 0.2% 2.7% -1.4% 2.7% 4.9% 5.5% 6.9% 5.2% Operating Margin (ex-SBC) -13.6% -1.9% 1.3% 9.3% 8.6% 9.7% 7.7% 6.5% 10.5% 12.0% 13.2% 10.9% 13.6% 14.8% 14.9% 15.4% 14.7% Net Margin -20.0% -13.9% -10.4% -1.6% -3.8% -2.9% -4.3% -5.0% -1.7% 0.1% 1.8% -0.9% 1.8% 3.2% 3.6% 4.5% 3.4% Current disclosure information for this company is located at http://www.piperjaffray.com/researchdisclosures. FYE 2013FYE 2011 Yelp FYE 2012 FYE 2015 FYE 2015 FYE 2014 FYE 2014 FYE 2013 Page 4 of 6Yelp, Inc.
  • 5. C O M P A N Y N O T E A p r i l 1 6 , 2 0 1 4 IMPORTANT RESEARCH DISCLOSURES Notes: The boxes on the Rating and Price Target History chart above indicate the date of the Research Note, the rating, and the price target. Each box represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first Note written during the past three years. Legend: I: Initiating Coverage R: Resuming Coverage T: Transferring Coverage D: Discontinuing Coverage S: Suspending Coverage OW: Overweight N: Neutral UW: Underweight NA: Not Available UR: Under Review Distribution of Ratings/IB Services Piper Jaffray IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [OW] 354 60.00 83 23.45 HOLD [N] 215 36.44 21 9.77 SELL [UW] 21 3.56 0 0.00 Note: Distribution of Ratings/IB Services shows the number of companies currently in each rating category from which Piper Jaffray and its affiliates received compensation for investment banking services within the past 12 months. FINRA rules require disclosure of which ratings most closely correspond with "buy," "hold," and "sell" recommendations. Piper Jaffray ratings are not the equivalent of buy, hold or sell, but instead represent recommended relative weightings. Nevertheless, Overweight corresponds most closely with buy, Neutral with hold and Underweight with sell. See Stock Rating definitions below. Analyst Certification — Gene Munster, Sr Research Analyst Analyst Certification — Douglas J. Clinton, Research Analyst The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Page 5 of 6Yelp, Inc.
  • 6. C O M P A N Y N O T E A p r i l 1 6 , 2 0 1 4 Research Disclosures Piper Jaffray was making a market in the securities of Yelp, Inc. at the time this research report was published. Piper Jaffray will buy and sell Yelp, Inc. securities on a principal basis. Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues. Rating Definitions Stock Ratings: Piper Jaffray ratings are indicators of expected total return (price appreciation plus dividend) within the next 12 months. At times analysts may specify a different investment horizon or may include additional investment time horizons for specific stocks. Stock performance is measured relative to the group of stocks covered by each analyst. Lists of the stocks covered by each are available at www.piperjaffray.com/ researchdisclosures. Stock ratings and/or stock coverage may be suspended from time to time in the event that there is no active analyst opinion or analyst coverage, but the opinion or coverage is expected to resume. Research reports and ratings should not be relied upon as individual investment advice. As always, an investor’s decision to buy or sell a security must depend on individual circumstances, including existing holdings, time horizons and risk tolerance. Piper Jaffray sales and trading personnel may provide written or oral commentary, trade ideas, or other information about a particular stock to clients or internal trading desks reflecting different opinions than those expressed by the research analyst. In addition, Piper Jaffray technical research products are based on different methodologies and may contradict the opinions contained in fundamental research reports. • Overweight (OW): Anticipated to outperform relative to the median of the group of stocks covered by the analyst. • Neutral (N): Anticipated to perform in line relative to the median of the group of stocks covered by the analyst. • Underweight (UW): Anticipated to underperform relative to the median of the group of stocks covered by the analyst. Other Important Information The material regarding the subject company is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy and does not purport to be complete. This report is solely for informational purposes and is not intended to be used as the primary basis of investment decisions. Piper Jaffray has not assessed the suitability of the subject company for any person. Because of individual client requirements, it is not, and it should not be construed as, advice designed to meet the particular investment needs of any investor. This report is not an offer or the solicitation of an offer to sell or buy any security. Unless otherwise noted, the price of a security mentioned in this report is the market closing price as of the end of the prior business day. Piper Jaffray does not maintain a predetermined schedule for publication of research and will not necessarily update this report. Piper Jaffray policy generally prohibits research analysts from sending draft research reports to subject companies; however, it should be presumed that the analyst(s) who authored this report has had discussions with the subject company to ensure factual accuracy prior to publication, and has had assistance from the company in conducting diligence, including visits to company sites and meetings with company management and other representatives. Notice to customers: This material is not directed to, or intended for distribution to or use by, any person or entity if Piper Jaffray is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to such person or entity. Customers in any of the jurisdictions where Piper Jaffray and its affiliates do business who wish to effect a transaction in the securities discussed in this report should contact their local Piper Jaffray representative. Europe: This material is for the use of intended recipients only and only for distribution to professional and institutional investors, i.e. persons who are authorised persons or exempted persons within the meaning of the Financial Services and Markets Act 2000 of the United Kingdom, or persons who have been categorised by Piper Jaffray Ltd. as professional clients under the rules of the Financial Conduct Authority. United States: This report is distributed in the United States by Piper Jaffray & Co., member SIPC, FINRA and NYSE, Inc., which accepts responsibility for its contents. The securities described in this report may not have been registered under the U.S. Securities Act of 1933 and, in such case, may not be offered or sold in the United States or to U.S. persons unless they have been so registered, or an exemption from the registration requirements is available. This report is produced for the use of Piper Jaffray customers and may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose without the prior consent of Piper Jaffray & Co. Additional information is available upon request. Copyright 2014 Piper Jaffray. All rights reserved. Page 6 of 6Yelp, Inc.