Yelp Inc. (YELP) recently launched its services in Latin America. The online information service provider announced the availability of Yelp in Brazil, where residents can create accounts on Yelp.com.br to post their views about local businesses and services.
Yelp’s free application for Google’s (GOOG) Android and Apple’s (AAPL) iOS devices will be available to Brazilians. The company announced that free Yelp for business owners will also be available to the thriving business community in Brazil.
Brazil is the world’s 7th largest economy in terms of gross domestic product (“GDP”) and the largest economy in Latin America. An important member of the BRICS group, the International Monetary Fund (“IMF”) recognizes Brazil as a part of the emerging market and developing economies.
Per IMF’s July World Economic Outlook projections, Brazil’s economy is expected to expand 2.5% in 2013 and 3.2% in 2014. Although this is lower than IMF’s earlier projections, growth projections are much better than 0.9% in 2012.
Brazil’s improving economy is expected to boost Yelp’s customer base. Moreover, Yelp will be available in Portuguese, the official language of the country, spoken by majority of the citizens. Additionally, Brazil is set to host two major global events, FIFA World Cup in 2014 and summer Olympics in 2016, which present a significant growth opportunity for Yelp.
Although we believe that the entry into the Brazilian market is a positive move for Yelp, the current sluggish macroeconomic condition will not boost top-line growth in the near term. However, Brazil’s low Internet penetration compared to North America and Europe can be a headwind going forward.
Nevertheless, Yelp will continue to expand in the rapidly growing markets of Latin America, Eastern Europe and Asia, which will drive its top-line growth. Currently, Yelp has a presence in 50 international markets.
Yelp expects to continue to invest heavily in sales & marketing and product development (to expand its platform in mobile applications). The acquisitions of Qype GmbH (Oct 2012) and SeatMe Inc (Jul, 2013) will further help Yelp to penetrate new markets going forward.
Although we believe that this incremental spending will hurt profitability in the near term, the expanding product platform will help Yelp to capitalize on the significant growth opportunity from higher ad spending going forward.
Yelp’s increasing mobile penetration (approximately 59.0% of all Yelp searches were through mobile) will aid the company to better monetize the platform. Additionally, Yelp’s partnerships with Apple and Facebook (FB) are significant positives going forward.
Currently, Yelp has a Zacks Rank #2 (Buy).
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