Yelp’s local advertising business flattened in the third quarter, leading to a miss on revenue and lowered company guidance for the remainder of the year.
The online advertiser/local review site disclosed a net income of $15 million on sales of $241.1 million, Thursday — less than industry analysts’ $245.4 million projection. In addition, Yelp revised down expected revenue totals for fiscal 2018 to between $938 million and $942 million, sending its shares tumbling 28 percent in after-hours trading.
Earlier this year, Yelp altered its go-to-market strategy from long-term advertising deals with restaurants and retailers to shorter, non-term contracts. While the company is still gun-ho about the move, it did have a large impact on its quarterly performance, as both clients and its sales team adjusted. Overall paid advertising accounts for the quarter reached 194,000, even with the second quarter tallies, Yelp said.
“The number of accounts canceling or turning over in the third quarter rose just as we expected, but really, the shortfall in the net number relates to the gross additions being later than we thought for the quarter,” said Jeremy Stoppleman, Yelp’s CEO, on the company’s earnings call with investors. “We’ve expressed some caution this year about the transition to non-term contract [because] it is a recognition that the business is operating at a bit of a different clock speed today than it was before.”
On the sales side, Yelp witnessed a lower success rate in contacting businesses through outbound calls, according to chief financial officer, Charles Baker.
“We had a bunch of folks who had been effectively under the same model for years,” said Baker. “And when we made the transition, some of them did not adapt to the non-term contract model as well. And so we did experience some of those folks leaving the local sales force. We’ve now been able to kind of get back on track and replace them with new folks.” The company did not disclose specific numbers on personnel changes.
Still Bullish on 2019
Despite early struggles, the shift to “non-term” has introduced new customer behaviors that make 2019 more favorable to the company’s bottom line, it said.
Yelp has witnessed a greater number of trial purchases and on-and-off spending patterns from its customers in 2018. And while turnover rates have been higher in the early months of the non-term structure, retention numbers for the period remain consistent with the company’s expectations. The number of repeat advertisers in the third quarter grew from 5,000 to 6,000, according to the company.
“This shift in non-term contracts has opened the local sales funnel,” said Stoppleman, adding that offering businesses more control over advertising with Yelp is also benefiting customer engagement.
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