Yelp Inc. 2013 Form 10-K Summary
Business context and reporting period
Yelp connects consumers with local businesses through user reviews, business listings, advertising, mobile applications and transaction services. This Form 10-K covers the fiscal year ended December 31, 2013; quarterly information for the three months ended December 31, 2013 is also provided. Qype markets were fully migrated to the Yelp platform during the fourth quarter, and SeatMe was acquired in July 2013.
- Approximately 52.8 million cumulative reviews, up 47% year over year.
- Approximately 120.0 million average monthly website unique visitors in the fourth quarter, up 39%.
- Approximately 10.6 million unique mobile devices used the mobile application monthly on average in the fourth quarter.
- Approximately 1.5 million claimed business locations, up 50%.
- Approximately 67,000 active local business accounts generating revenue in the fourth quarter, up 69%.
Financial performance and liquidity
| Metric | Fiscal 2013 | Fiscal 2012 | Change |
|---|---|---|---|
| Net revenue | $233.0 million | $137.6 million | +69% |
| Local advertising revenue | $193.0 million | $109.2 million | +77% |
| Brand advertising revenue | $28.0 million | $20.6 million | +36% |
| Other services revenue | $12.0 million | $7.8 million | +54% |
| Loss from operations | $(8.8) million | $(18.8) million | Improved |
| Net loss | $(10.1) million | $(19.1) million | Improved |
| Adjusted EBITDA | $29.4 million | $4.6 million | Improved |
| Cash flow from operating activities | $21.4 million | $(0.1) million | Improved |
Annual gross margin was approximately 93%, operating margin approximately negative 3.8%, and net margin approximately negative 4.3%. Adjusted EBITDA is a non-GAAP measure that excludes, among other items, stock-based compensation, depreciation and amortization, taxes and restructuring costs.
| Fourth-quarter 2013 metric | Value |
|---|---|
| Net revenue | $70.7 million |
| Loss from operations | $(1.9) million |
| Net loss | $(2.1) million |
| Adjusted EBITDA | $10.4 million |
| Operating margin | Approximately negative 2.7% |
| Net margin | Approximately negative 2.9% |
- Cash and cash equivalents were $389.8 million at December 31, 2013, including $360.7 million in money market funds.
- Working capital was $391.8 million and total assets were $516.0 million.
- Yelp had no outstanding bank loans, credit facilities or material capital lease obligations.
- Cash provided by financing activities was $291.7 million, primarily reflecting $276.5 million of net proceeds from the October 2013 follow-on offering.
- Capital expenditures were $16.2 million, and capitalized website and software development costs were $4.9 million.
- Total liabilities were $29.5 million, including $4.5 million of long-term liabilities.
Material changes versus the prior comparable period
- Revenue growth accelerated to $233.0 million from $137.6 million, led by local advertising and the expanded sales force.
- Sales and marketing expense increased 54% to $132.0 million, while product development expense increased 87% to $38.2 million.
- Despite continued net losses, the operating loss narrowed substantially as revenue growth exceeded expense growth; sales and marketing declined from 62% to 57% of revenue.
- Operating cash flow improved from an outflow of $0.1 million to an inflow of $21.4 million.
- The company acquired SeatMe for approximately $11.8 million, consisting of cash and Yelp Class A shares, adding online reservation capabilities.
- Qype integration and restructuring continued, with $0.7 million of restructuring and integration expense in 2013 versus $1.3 million in 2012. The plan was substantially completed by year-end.
- Revenue mix shifted further toward local advertising, which represented 83% of revenue versus 79% in 2012; brand advertising declined to 12% from 15%.
- Stock-based compensation increased to $26.7 million from $14.9 million and represented a significant non-cash expense.
Guidance, outlook, risks and unusual items
Management stated that Yelp intends to prioritize long-term growth over near-term profitability and does not expect to be profitable in the near term. The company expects operating expenses to increase as it expands its sales force, international operations, product capabilities and technology infrastructure. Planned 2014 capital expenditures were estimated at $10 million to $14 million.
- Management believes existing cash and expected operating cash flow will fund working capital and anticipated capital expenditures for at least the next 12 months, but noted that additional equity or debt financing may be sought.
- Growth depends heavily on attracting and retaining local business advertisers, maintaining user traffic and review quality, and effectively monetizing mobile usage.
- More than half of website search traffic originated from search engines, with Google accounting for more than half of visits from Internet searches during the three months and year ended December 31, 2013. Changes to search rankings or promotion of competing products could materially affect traffic.
- Yelp faces intense competition from Google, Bing, Yahoo, Facebook, offline media and other review platforms.
- Key risks include slowing growth as markets mature, international expansion, mobile advertising effectiveness, service interruptions, privacy and data-security obligations, intellectual-property claims, user-generated-content litigation and regulatory changes.
- The company had an unresolved appeal relating to claims that Yelp manipulated reviews to coerce businesses to purchase advertising. The filing states that the potential loss could not be reasonably estimated.
- Total future non-cancelable operating lease payments were $103.1 million, including $15.3 million due within one year.
- Goodwill totaled $59.7 million at year-end; no goodwill or intangible-asset impairment was identified.
- The dual-class share structure gives Class B holders approximately 66% of voting power, concentrating control among existing holders.
Investor verification points
- Verify the sustainability of revenue growth and whether the company can convert adjusted EBITDA into durable GAAP profitability.
- Reconcile adjusted EBITDA to GAAP results, with particular attention to $26.7 million of stock-based compensation.
- Assess customer retention, advertiser acquisition costs and the proportion of active accounts that are new versus renewing advertisers.
- Monitor mobile advertising monetization and whether mobile usage is incremental or substitutes for desktop usage.
- Evaluate dependence on Google and other search engines for traffic acquisition.
- Review the financial and operating results of Qype and SeatMe, including integration costs, goodwill and potential impairment exposure.
- Review pending litigation, privacy and user-content claims, including the unresolved review-manipulation appeal.
- Assess dilution from the follow-on offering, equity awards and outstanding options, including 11.1 million options outstanding at year-end.
- Confirm cash availability against planned capital spending, lease commitments and potential future financing needs.