CEO Says Yelp Is at ‘Peak Desktop’ — Is It Also Nearing Peak Growth?

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yelp-logoYelp posted its first-ever annual profit Thursday, but sluggish user growth sent shares of the reviews company tumbling in after-hours trading. The company finished the year with $337.5 million in revenue on $32.7 million in annual profit, driven by strong growth in its local advertising business.

The company generated $93 million in local advertising revenue during the fourth quarter, contributing to a 65% jump in Yelp’s core business during 2014. Revenues were also bolstered by a partnership with YP inked last spring that helped to grow revenue in its “Other” category by over 140% in the fourth quarter and offset slight declines in its brand advertising segment.

However, the solid earnings were dampened by concerns that the strong user growth, which propelled the company to the public markets, may be waning. The company has seen growth of its unique monthly users, a measure of traffic across both mobile and desktop properties, slow on a year-over-year basis for the past five quarters. During a seasonably slow fourth quarter, total unique visitors actually declined from the previous period.

The slowdown comes as mobile accounts for nearly half of the company’s traffic and makes up almost two-thirds of searches on Yelp. During an earnings call Thursday, Jeremy Stoppelman, chief executive at Yelp, downplayed the decline in traffic, pointing to a 37% jump in traffic to its mobile properties and underscoring the seasonable sluggishness of the fourth quarter.

“We’re at peak desktop, more or less. Users are going to mobile, and with our mobile traffic growing at 37% year over year, we’re feeling pretty good about that,” said Stoppelman. “But the age of [users] going to Google on your desktop and finding [their] way to Yelp — while it’s not over — we’ve sort of hit that peak.”

While the shift to mobile can make determining total users difficult, the decline in traffic growth seems difficult to explain away. During the last two quarters of 2013, Yelp grew total UVs by roughly 40% from a year earlier; during the third and fourth quarters of 2014, those numbers slowed to 19% and 13% respectively. Meanwhile, mobile traffic, which has grown consistently on a year-over-year basis for the past year, actually declined in the last quarter of 2014 — albeit, a typically sluggish part of the year for the company.

The slowing growth may also stem from an international expansion that has developed slower than some watchers expected. International unique visitors have remained essentially flat over the past few quarters after the company posted strong growth in 2013, which was boosted by the acquisition and integration of Qype in 2012. The company responded in October with the acquisition of two international rivals: the German firm Restaurant-Kritik and French reviews site CityVox.

Yelp remains a strong and growing company, but the shift to mobile has undoubtedly hurt the company’s search-driven customer acquisition strategy. As much as the company may want to rid itself of its dependency on Google, the search giant has provided a critical platform on which a small company with unique content could quickly grow its user base.

In an app-driven mobile environment, customer acquisition is substantially far more difficult. Instead, the company may have to invest more in marketing spending, adding to the already massive amount technology companies spend each year to drive application installations.

Steven Jacobs is Street Fight’s deputy editor.