They say you have to spend money in order to make money. The problem for Yelp is that they may be spending too much money compared to what they’re earning. This is common for publicly-traded companies, but in their case they may be spending too much compared to how much they have the potential to make, a prospect that nobody at the company and few on Wall Street are willing to entertain.
There is definitely growth-potential for whoever can do well in the local listings and recommendations industry. Mobile devices, the Apple products in particular, rely on Yelp as a way for users to find the best sushi bar in the area or see if there were any customer issues at the dry cleaners. Their biggest challenge and the reason that many are skeptical is Google Places and the likely switch to Google Plus Business pages.
If/when this happens, Yelp will have its biggest competitor staring down on them from a position of authority. Google and Yelp have already had a rocky relationship over the years and nobody expects the search giant to let the pressure off of Yelp. It’s the likely reason that Yelp is overspending as much as they are on marketing and advertising. They need to solidify as much of the field as they can before Google can come in and try to steal it.
Are they spending too much?
No. Buying their way into business owners‘ minds and vendor lists is the only chance they have of sustaining for years to come. Conservative action at this point would probably doom the company altogether. Still, it doesn’t make this chart any more encouraging to investors.
“We are very pleased to report our first quarter as a public company,” said Jeremy Stoppelman, Yelp’s chief executive officer. “We were particularly excited to launch 11 new Yelp markets in the first quarter, including Sydney and Stockholm. With more than 80 Yelp cities around the world today, consumers are yelping about their favorite local businesses in record numbers and we look forward to continue expanding our platform around the globe.”