How To Buy Yelp Inc. (YELP) Stock

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Contributor, Benzinga
October 10, 2023

Two former PayPal employees launched Yelp Inc. (NYSE: YELP) as a means to compile word-of-mouth reviews for local businesses and services. Jeremy Stoppelman and Russel Simmons developed the San Francisco based platform in July 2004, and its popularity soared almost immediately.

Before Yelp, consumers relied on endorsements from those closest to them — a rather limiting notion since we usually associate with others of like minds. But with Yelp, varied users in local communities in the U.S., Canada and Europe placed reviews that others considered before making decisions to patronize businesses. Yelp was the first platform of its kind.

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Yelp Stock and Company History

Stoppelman and Simmons initially toyed with naming the company Yocal, but the domain already existed. They ultimately decided on Yelp, which is a name combining "help" and "Yellow Pages."

Three key groups help drive Yelp's online presence:

  • Contributors: Those who share their experiences with a local business or service by posting reviews, ratings or photos
  • Consumers: Those who proactively seek information on the platform; motivated buyers
  • Local businesses: Entities that directly engage with consumers and therefore benefit (or suffer) from reviews posted on the platform

The platform's popularity feeds off input. The more reviews that are written on the platform, the more it guides consumers' purchasing habits. Increased purchasing habits make Yelp's favorability grow, and with consumer traffic growth, the site becomes an effective advertising solution for companies interested in targeting a large number of intent-driven consumers. That remains a key component because businesses are now shifting advertising dollars to online ventures.

Yelp's initial public offering (IPO) was March 2, 2012. On the first day its stock price increased by 64% to close at $24.58. The platform at the time attracted 66 million users per month, and in the previous year it generated $83.3 million in revenue. Yet the company had yet to turn a profit, losing $16.9 million that year.

Despite finishing in the red every quarter during the next two years, Yelp stock surged. On March 5, 2014, it peaked at $101.75 — a 313% increase from its IPO. It wasn't until the following quarter that the company posted its first profit. Its net profit for the quarter was $2.7 million. Yelp stock has traded flat over the past five years with some volatility in between. Shares have gained over 50% in 2023 due to rising revenue and earnings.

The Future Outlook for Yelp

Approximately 32.6 million businesses operate in the U.S., according to the Small Business & Entrepreneurship Council. Each day millions of consumers choose to spend their money with these businesses. Why and how consumers make purchasing decisions is largely based on reviews. Yelp capitalizes on these consumer behavior decisions.

The company plans to initiate its next phase of growth which is focused on three pillars:

  • Increase focus on advertisers and business owners.
  • Enhance go-to-market strategy by integrating product and product marketing with sales efforts.
  • Execute long-term targets for growth, profitability and capital return.

Yelp also intends to create long-term shareholder value through several strategies:

  • Drive margin expansion and optimize cost structure.
  • Accelerate strategy through effective partnerships.
  • Align capital allocation with shareholder value creation.
  • Continually develop company talent and board of directors.

The borderless world that technology has created connects us in ways that, among other things, affect our economic decisions. Yelp intends to be the driving force behind that continued evolution. It's a critical position to occupy, filled with potential rewards and possible stumbling blocks.

Reasons to Buy Yelp Stock

Are you wondering if Yelp makes sense for your portfolio? Here are several reasons why you should consider buying Yelp stock.

The Credibility of Online Reviews

The public's increasing reliance on the digital age naturally brings added credibility to online reviews. Numerous online surveys reveal that up to 90% of consumers base their purchasing choices on online reviews, thus cementing Yelp's value and importance to the consumer experience.

Companies Migrating to an Online Presence

Yelp makes it easier for consumers to find information about local and international businesses. This information can help consumers make better decisions, and many companies are expected to use Yelp and similar services to share online reviews. Consequently, consumers flock to the site in a quest to gather information. The traffic makes Yelp an attractive search advertising platform for businesses.

Platform Expansion

Yelp plans to fortify its distribution channels and features to include web-enabled televisions and voice-enabled mobile devices, as well as geographic targeting by advertisers. Some companies cover a larger regional area and desire a wider swatch of customers, while other companies prefer customers closer to their location.

New Avenues to Generate Revenue

The company looks to grow its sales force and expand its portfolio of revenue-generating products, thus reaching new businesses in local markets and increasing its advertising.

Reasons to Be Cautious of Buying Yelp Stock

While Yelp has many advantages, it is important to consider the risks before committing to Yelp stock.

Strong Competition

Google reportedly offered to buy Yelp in 2009 for $550 million. Stoppelman and Simmons declined. Google and Bing decided to develop review features and, in effect, become real competitors.

Possibility of Ongoing Litigation

Businesses claim that reviews posted by Yelp users affect them in a way that infringes on their ability to conduct business. Addressing these claims could divert management's attention away from the core business and negatively affect Yelp's profitability.

Changes in the Advertising Market

If the advertising market goes through a slowdown, Yelp stock can take a hit. Slowdowns in consumer spending can also result in less demand for Yelp's platform and hurt earnings in the process.

How To Buy Yelp Stock

Investing can be a bewildering process for some. To others, it's an exercise that's as second nature as driving a car. Wherever you fall in that continuum, you must master the basics. Doing so allows you to expand your knowledge and perspective of investing in a way that makes the process more rewarding.

Depending on your level of expertise, the five basic steps below can help establish your foundational understanding of the process or serve as a refresher.

Conduct Your Research

Before you purchase stock, conduct as much research as possible about the company and its industry. It may be easier to rely on professionals to help guide your investment decisions, but first become familiar with the process. It will help eliminate the mystery of investing. In your information gathering you'll gain confidence to help you navigate through stocks and Yelp itself. The more information you have, the simpler and less intimidating the process can be.

Choose a Broker

Some investors choose to go about it alone, using online brokers to manage their transactions. Others prefer one-on-one interaction and relationship-building from full-service investment firms. There's no right or wrong answer; it's an individual decision. But while each has its pros and cons, it's about personal preference and what suits you as an investor.

Establish and Build a Relationship with a Broker

This is a critical step toward building the kind of investment portfolio that fits your needs. It's important because it allows you to build trust with your broker. It also allows them to become familiar with your goals and suggest the kinds of investment vehicles to get you there. Always remember that the brokers work for you and that you make the ultimate decision.

Fund Your Account

Interested in an online brokerage? Create an account and link your banking information to transfer funds or wire money into the account. Either way, once you deposit the funds, you're ready to start trading.

Finalize Your Yelp Stock Purchase

Yelp trades on the New York Stock Exchange under the symbol YELP. You're now ready to purchase Yelp stock at the current per-share price, less any fees or related costs using either your online or your neighborhood broker.

Should You Buy Yelp Stock?

Consumers have access to many platforms that make it easy to process and receive information. Yelp helps consumers stay informed about how companies treat their customers. Disgruntled customers also have the opportunity to warn potential customers about bad service.

Many businesses have set up Yelp profiles where customers can leave good reviews. Good reviews can build up social proof and help businesses cater to more customers. Yelp creates this experience for business owners and is one of the top resources for finding online reviews. Yelp shares have performed well so far in 2023. While the performance has been flat over the past five years, the stock has experienced considerable volatility. Investors should consider their financial goals and risk tolerance before committing to Yelp stock.

Frequently Asked Questions

Q

Should I buy Yelp stock?

A

Yelp stock has growing revenue and earnings but is a volatile investment. Investors should consider their portfolio diversification and finances before buying Yelp stock.

Q

Who owns Yelp stock?

A

Many investors and financial institutions own shares, but Yelp’s largest shareholders are BlackRock, Vanguard, and State Street.

Q

How much money is Yelp worth?

A

Yelp currently has a market cap of roughly $3 billion.