The perfect place for promoting your business – Yelp Inc. YELP is breaking banks for small scale entrepreneurs. This has reportedly alarmed investors regarding the prospects of the company. Once hailed as the “to-go” destination for advertisement for local businesses, the site has reportedly become too expensive. Yelp is charging small businesses 1,000x the standard online cost per thousand impressions (CPM) rates, per media reports. In dollar terms, while online advertising costs as low as 60 cents CPM, Yelp is charging around $600 CPM from local advertisers. For national advertisers, the company works for a premium of 100x.
Independent entrepreneurs believe that a bulk of their advertisement expenditure is owing to Yelp and if the platform does not generate adequate sales then the spending is unjustified. Reportedly, most entrepreneurs believe that Yelp ads have so far made no difference to sales except for generating positive reviews. However, given the amount of negative reviews that the Yelp site is currently generating, advertisers remain wary of using Yelp services.
The price escalation may sound accretive to Yelp’s top-line growth but stiff competition from other online publishers will make it difficult for the company to sustain its pricing.
The advertisement market is currently dominated by big names like Google GOOGL, Facebook FB and Yahoo! Inc. YHOO. In fact, Facebook, Google, Twitter, Yahoo and AOL make up the top five platforms for digital display advertising. In addition, the fierce competition between these companies leads to more affordable advertisement solutions and a wider target market. Hence, it is difficult to predict how YELP will differentiate itself in the advertisement world and justify its premium pricing.
Yelp’s stock price declined 5% in the past one week and has lost around 21% year-to-date. However, the stock rose around 1.3% (56 cents) on Tuesday at the close of trade.
The stock currently has a Zacks Rank #4 (Sell).
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