DECK & REPLAY: CLICK HERE
KEY TAKEAWAYS
- MONETIZATION CEILING? YELP’s model is predicated on driving new account growth in excess of its rampant attrition, which we estimate is the overwhelming majority of its accounts on an annual basis. YELP’s elevated churn is likely due to poor advertiser ROI, which we suspect is due to a lack of sufficient ad inventory. YELP's growth is only compounding the issue since its traffic (I.e. Unique Visitors, or UVs) hasn't kept pace with the rate at which YELP has onboarded accounts (PAAs), suggesting that there is progressively less ad inventory to spread around per account. In short, YELP has been serially overmonetizing its platform throughout its public history, so the question is how much revenue can YELP's platform sustainably service? YELP's elevated churn has plagued the company throughout its reported history, so there's no clear benchmark to point to, but it's likely less than half of what it's doing today (see deck for context).
- NON-TERM INTRODUCES NEW RISK: We believe the model started to fail in mid-2017, which is when we estimate that gross adds in its core salesforce-driven business started declining on a y/y basis. YELP responded by allowing its reps to sell non-term ad packages, which greases the wheels for gross adds but exacerbates churn at the same time. We believe the non-term ad model will exhaust YELP's TAM at an elevated rate. What's more concerning is the risk of cash burn as the non-term model hampers the unit economics of YELP's salesforce. Put simply, YELP's profitability was previously sourced from its contracted term lengths since its customers couldn't churn off at will, but there is a growing risk that reps may not be able to generate enough revenue to cover YELP's total cost structure, let alone their own salaries, as non-term becomes a growing mix of YELP's account base.
YELP 2018 DECKS & REPLAYS
- YELP | SHORT THESIS REFRESH | 9/5/2018 | CLICK HERE
- INTERNET | BEST IDEAS MID-YEAR UPDATE | 6/28/2018 | CLICK HERE
- YELP | NEW BEST IDEA SHORT | 2/5/2018 | CLICK HERE
Let us know if you have any questions or would like to discuss further.
