“Yelp sells ads through a mix of a self-service model similar to Google’s and a “full-service” model using a sales force. The company doesn’t disclose how much revenue comes from each method, but said it plans to invest more in the business in the coming year to capture more market share.”, Heard On The Street, Wall Street Journal

“Where is the SEC on these types of simple and yet important, material non-disclosures? Just pick up and read any financial publication; they seem to be everywhere. Yelp needs the SEC to tell them: “Look, you need to disclose this information to investors pronto, it’s important and material.” But it seems to me that the SEC really doesn’t have a mechanism for this to occur. Again, I think this is related to the fact that the SEC is “overrun” by lawyers who seem to be mostly focused on “buffing” their resumes with securities fraud cases. I think securities fraud tips are the primary purpose of the SEC’s relatively new hotline. And private securities fraud disclosure lawsuits, under the securities laws, require a stock loss to have occurred first. My fairly experienced view is that most of these private securities fraud cases are completely bogus. The plaintiffs lawyers literally track public companies whose stocks have declined enough during a period of time (I bet they even utilize economic formulas that include percent and dollar value declines, in deciding on how big a claim they can file, yet trying to beat their competitors to the punch in filing a suit.) and then hunt through the companies public filings for a non-disclosure issue like the one above. The Yelp “non-disclosure” most likely has nothing to do with securities fraud, but it probably should be disclosed to investors. (It seems important and material to me and the author of this short article.) I believe the SEC needs to develop a program that encourages non-lawyers: private institutions, financial analysts, and even individuals to raise these types of important disclosure issues with them and earn a fee commensurate with their value. (Assuming the SEC requires the company or the industry to improve their disclosures, as a result.) And I think that fee should be a simple and considerable amount, say one million dollars (paid by the company or industry). If the disclosure is important and material, it’s worth one million. (If the SEC doesn’t like this idea, I have another: require public companies to maintain on their public websites a section for interested parties to request certain public disclosures be made and for the company to respond. And then require annually the company to file in their 10-K or “Annual Public Disclosure 8-K”, these requests and their response. In this way, it is not some analyst or shareholder privately asking for the disclosure to be made and being turned down. It is all out in the open and the SEC knows; placing a lot of pressure on the company to disclose it or justify why they had not.) Either way, not only should it improve public company disclosures, but it might occur before the company’s stock suffers a decline and therefore either help investors avoid losses and/or help prevent multi-million dollar frivolous class action securities fraud lawsuits from be filed.” Mike Perry, former Chairman and CEO, IndyMac Bank

No Law of Large Numbers for Yelp

Feb. 6, 2014 3:46 p.m. ETFor a small company, Yelp commands some big numbers.For instance, there’s the 67% revenue-growth rate year over year that the online-review site has averaged each quarter since it went public in March 2012. There is also the site’s 120 million average monthly visitors in the fourth quarter, up 39%. And 53 million of those are coming from mobile, up 60% in the fourth quarter.

There’s another big number: 17.5 times. That’s the multiple of 2014 revenue at which Yelp’s stock trades. It makes Google‘s 5.6 times and even Facebook‘s at 14 times look cheap. And they’re established Internet powerhouses also targeting the same local business segment Yelp does to increase ad sales.

Yelp’s opportunity is significant. Janney Capital estimates the local online advertising market in the U.S. at north of $130 billion. Yelp is a well-known brand that made only $233 million in revenue last year. The company also noted in its earnings call late Wednesday that only 4% of its revenue came from international markets that accounted for about 21% of traffic to the site.

But growth won’t come cheap. Yelp sells ads through a mix of a self-service model similar to Google’s and a “full-service” model using a sales force. The company doesn’t disclose how much revenue comes from each method, but said it plans to invest more in the business in the coming year to capture more market share. It projects earnings before interest, tax, depreciation and amortization to jump by about 90% in 2014 following last year’s sixfold surge.

Despite the fact that Yelp is going up against big, rich rivals, Wall Street mirrors these high hopes, expecting revenue growth to average 43% over the next three years. As a business, Yelp does have good growth potential. Its stock looks like it’s already there.

Write to Dan Gallagher at dan.gallagher@wsj.com

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Posted on February 7, 2014, in Postings. Bookmark the permalink. Leave a comment.

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