Q3 Earnings Roundup: Shift to Mobile Presents Commerce Challenge for Yelp, Angie’s List, Groupon
Consumers are spending more time on their mobile devices than ever, a shift that is affecting both traditional and digital businesses. Recent earnings reports from Yelp, Angie’s List, and Groupon indicate that some of these publicly traded local mainstays are handling the transition better than others, particularly the rising challenge to effectively combine content, commerce, and services.
Net revenue — $143.6 million, up 40 percent year-over-year (YOY)
Local advertising revenue — $115.9 million, up 36 percent YOY
Transaction revenue — $12.0 million, up from $1.3 million in Q3 2014
Brand advertising revenue — $9.0 million, down four percent YOY
Net gain/(loss) — ($8.1) million, $(0.11) per share
Yelp reported earnings on October 28, posting nearly $144 million in revenues, up almost $10 million from the previous quarter. The company pleased investors by beating consensus revenue estimates, despite a sharply higher quarter-over-quarter loss of $8.1 million, up from $1.3 million in Q2. Notwithstanding strong topline revenue growth, Yelp’s stock has suffered this year, down more than 50 percent year-to-date.
In its investor presentation, Yelp underscored the company’s strong mobile performance for the quarter. Mobile unique visitors were up 22 percent YOY and the number of unique devices accessing the Yelp app on a monthly average basis was up 39 percent YOY. Approximately 56 percent of new reviews posts in Q3 came from mobile devices, suggesting both content consumption and contributions are shifting toward smartphones.
The steep YOY growth (albeit from a very small base) in transaction revenue, attributable primarily to the company’s Eat24 acquisition, signals a future direction for the company where content and commerce are more explicitly linked — and monetized — through the Yelp platform. That extends to businesses as well: Yelp said the number of restaurants using either Yelp or SeatMe reservations to manage bookings reached nearly 18,000 in Q3, more than triple the number from a year earlier. Yelp is positioning itself to capitalize on expressions of intent from mobile users by making the decision-making process more seamless and keeping users on its platform, rather than using a third-party food ordering app, for example.
Total revenue — $87.0 million, up seven percent YOY
Service provider revenue — $69.8 million, up 11 percent YOY
Membership revenue — $17.2 million, down six percent YOY
Total paid memberships — 3.2 million, up nine percent YOY
Average member renewal rate — 77 percent, unchanged YOY
Net gain/(loss) — $82,000, $0.00 per share
Angie’s List reported earnings on October 21, posting $87 million in revenues, eking out net income of $82,000 for the quarter, a significant improvement over the $5.2 million loss it saw a year earlier. The company said this was the first profitable third quarter in its history.
The earnings announcement also revealed some potentially troubling long-term trends. Although total paid memberships were up nine percent YOY, the number of gross paid members added in the quarter declined by 15 percent. Member acquisition costs also rose 22 percent while renewals remained flat and the number of participating service providers declined one percent. Total revenue per paid member, comprising membership and service provider revenue, dropped from $143 in Q3 2014 to $134 in Q3 2015. The company cut its full-year revenue guidance.
On the earnings call, CEO Scott Durcshlag signaled the company’s challenge: He said Angie’s List is “catalyzing $10 billion to $15 billion of economic activity.” Catalyzing does not put the company in a particularly favorable position. Yelp is no doubt catalyzing billions in economic activity as well, but with its Eat24 acquisition and other moves to broker and monetize transactions between consumers and local businesses, it is angling to retain a portion of those billions. The hiring of Durchslag, Best Buy’s former ecommerce chief, suggests Angie’s List is aware of the challenges it faces in a business landscape where free online reviews are abundant and well-funded, on-demand entrants such as Thumbtack and Handy, not to mention Amazon and Google, are taking on the hotly contested home services market.
Still, Durchslag sounded a confident note. “This market is so large and fast-growing,” he said, “that market research of 1,200 consumers, as well as our own exit surveys of departing customers, indicates that competitors are not taking market share from us. But rather, that we lose customers as a result of our own doing and for reasons that are often fixable.” It will be up to Durchslag to make those fixes.
Revenue — $713.6 million, down six percent YOY
Global units (vouchers and products sold before cancellations and refunds) — 52 million, up one percent YOY
Active customers — 48.6 million, up four percent YOY
Active deals — ~570 million
Net gain/(loss) — $(27.6) million, $(0.04) per share
Of the three companies, Groupon, the largest in revenues and market capitalization, also seems the most challenged to pivot its business. It reported another round of disappointing results yesterday, missing revenue expectations and guiding lower for the fourth quarter. Marketing and sales costs were up YOY, while revenues declined.
The company also continued its game of executive musical chairs, with COO Rich Williams, who was just appointed to his role in June, replacing co-founder Eric Lefkofsky as CEO. Lefkofsky will return to his role as board chair, with current chair Ted Leonsis, a fireside chat guest at the recent Street Fight Summit, transitioning to an independent director position. These results come on the heels of an announced cut in 1,100 jobs in September.
The once-high-flying daily deals market has lost significant altitude this year. Groupon’s chief competitor, LivingSocial, announced a 20 percent reduction in force last month, laying off around 200 employees and embarking on a plan to refocus the company. Last week, Amazon said it was shuttering its four-year-old daily deals business.
In his fireside chat at Street Fight Summit, Leonsis, the outgoing board chair, declared Groupon to be “a very misunderstood company,” conceding that “it scaled and grew very quickly — perhaps it got too hyperlocal. It’s in more than 700 cities, and when you get spread that thin, getting density in the amount of offers becomes difficult.” However, he added, “local ecommerce will continue to grow, and Groupon is the only company that has reached some kind of scale.” Incoming CEO Williams told analysts yesterday the company planned to up its marketing spending by $150 to $200 million per year to maintain that scale in key North American and Western European markets.
Noah Elkin is Street Fight’s managing editor.