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Yelp Posts Massive Earnings Increase But Still Hasn't Turned a Profit

The social-review site's massive growth can be attributed to an influx of advertisers, an analyst says.
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Consumer-powered social-review site Yelp exceed analyst expectations this week, posting a net revenue of $55 million during the second quarter -- almost 70 percent year-over-year growth compared to the same period in 2012. But the revenue bump was tapered by a quarterly net loss of $878,000.

The surge in revenue is due, in large part, to an influx of advertisers and an increase in paid accounts, says internet and mobile analyst Greg Sterling. "The strength of the Yelp brand is drawing more users and local businesses to the site," he says. "It's become an essential site for local business owners, much in the same way TripAdvisor is in the travel space."

Yelp noted that over the same earnings period, roughly 40 percent of its ads were displayed on mobile devices, underscoring the evolving ways consumers search for businesses and things to do on the fly instead of planning ahead before leaving home. Yelp also said that average monthly unique visitors grew 38 percent year over year to approximately 108 million, fueled in part by the company's international expansion.

Related: Yelp Doubles Down on Restaurant Businesses With Acquisition of Reservation Service SeatMe

Although the quarter resulted in a net loss, Yelp has made progress compared to the $2 million loss it registered during the same period last year. In the future, Sterling anticipates that Yelp's growth will slow, despite it being a global brand that many local businesses feel the need to engage with for exposure.

No doubt, Yelp has taken steps recently to shore up additional revenues from businesses. For instance, it created the Yelp Platform and a new tool called Call to Action that allow businesses to promote specific products on their corresponding Yelp profiles and even sell them, for a fee. It also acquired reservation service SeatMe, which lets restaurant owners add an online reservation system to their own site or Facebook page.

Earlier this month, a group of merchants appealed a lawsuit against Yelp that asserted it manipulated business ratings and removed positive reviews after businesses stopped paying for additional advertising on the site. The court of appeals heard oral arguments last month and is expected to issue a written decision sometime this fall.

Related: Angry Business Owners Appeal Yelp Ruling Over Alleged Extortion