Max Grigoryev
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Max Grigoryev in Fundamentality,

YELP: Marginality issues

YELP connects people with local business and gets its revenue from advertising. A few words about operating metrics:

  • Its customer acquisition cost is growing: from $6.7k in 2014 to around $10k in 2015 (as a result of 6 months);
  • The conversion rate from claimed local business locations to local advertising accounts was growing up over the last three years till 2015, as of June, 2015 this trend stopped;
  • Customber base growth rate dropped down from 74% in 2013 to 15% in 2015;

I assume that the company is going to kill its marginality, they put too much money to acquire new clients. The worst fact is the customer base: the growth rate came to risky 15%. I think that YELP needs to change the business model in order to increase its marginality, possibly create some loyal programs for the local business or something like that.

We can see some steps forward in changing the model - the company decreased its revenue from local advertisers as a percentage of net revenue: from 85% to 81%. The acquisition of Eat24 can give the company more marginality because of transaction revenue flow.