Economic Viability of YELPCom during 4 Years - Case Study Example

Assess the Economic Viability of YELP.Com during 4 Years Introduction Yelp.com or Yelp was founded in the year 2004 as a multinational business organization based on San Francisco, USA. It is mainly a website of sharing the experiences of the customers about product quality. Consumers obtain information about their preferred products and/or services by accessing the website. Yelp.com is regarded as a powerful source of consumer reviews in restaurant industry. In the year 2009, Yelp.com had around 3.5 million reviews on its site, which is incessantly increasing with the passage of time. It is worth mentioning that the online website created an environment for the consumers wherein they can communicate or share their respective experiences on a particular business (Tucker, 2011). Business Model The business model of Yelp can be better understood with the inclusion of eight key elements. These elements entail revenue model, value proposition, competitive environment, market opportunity, competitive advantage, market strategy, organisational development and management team. In relation to the element of value proposition, Yelp mainly focuses not only facilitating the customers to review and access varied information, but also enabling them to find any sort of event and talk with other users or the Yelpers. From the perspective of the element of market strategy, the website of the company emphasizes setting up free accounts for the users wherein they can post messages or photos. Concerning the element of market opportunity, Yelp’s website provides regular updates information and seeks for obtaining feedbacks from the customers. Finally, in terms of revenue model, the company mainly relies upon membership fees. In relation to the elements of competitive environment and advantage, the business model of Yelp can be ascertained as building loyal as well as active online community for the customers. From the perspective of organisational development, the company provides effective training to its personnel. With regards to the element of management team, the company promotes the ideas of the managers and other responsible officials towards the attainment of predetermined organisational targets (Luca, 2011). Strategic Analysis Value Proposition Value proposition is regarded as an innovation or a feature, which makes a company or a product attractive towards the customers. With regards to determine the value proposition of Yelp in the form of providing maximum benefits to the customers, it can be ascertained that the website has been able to connect the users or the customers with the local businesses. It is worth mentioning that the adoption as well as the execution of effective strategies certainly makes Yelp outstanding from its competitors and accordingly develops its value proposition in front of the customers by a considerable extent. In this similar context, localization is one of the important strategies for the success of Yelp. Notably, Yelp offers better facilities and benefits to its customers who are mainly the young males as well as females by sharing valuable information about business to them in a simpler manner. More importantly, in terms of value proposition, Yelp provides more and more location based services to its customers. Customer can directly communicate with the business partners of Yelp and clarify their respective confusions without facing any sort of problem (Luca, 2011; Zhang, 2009). Industry Analysis Porter’s 5‐Forces Analysis is regarded as one of the effective tools of analyzing the business market competition prevailing within an industry and the business policy advancement. This particular toll is useful to be taken into concern in the context of determining that the new products and/or services of any business have potential power to become profitable in future (Zhang, 2009). The different factors that constitute the above stated tool with the application of the same in Yelp have been elaborated in detail in the following discussion: Suppliers’ Power. Specially mentioning, suppliers’ bargaining power is low in the case of Yelp, as its products and/or services are computer as well as technology based. It can be apparently observed that there are numerous technology based supply corporations including Lowe’s and The Home Depot among others that Yelp can use while performing its varied operational functions. It will be vital to mention that the suppliers are the ones who provide goods or services to a company within a specific time period as per the demand (Zhang, 2009). Buyers’ Power. From the perspective of Yelp, the Buyers’ bargaining power can be apparently observed as moderate to low. This is mainly because new companies are emerging in the respective industry that tend to offer similar kinds of services as provide by Yelp at affordable costs or even at free to the customers. The limited information of the buyers or the customers about the website of Yelp may affect its overall performance as compared to other chief business market competitors, resulting in making the bargaining powers quite enlarged for the customers (Zhang, 2009). Competitive Rivalry. Competitive rivalry is regarded as one of the most powerful forces, which has the ability to raise the standards of entire operational performance of an organization. In relation to the case of Yelp, it can be affirmed that there already exists a strong business market competition in the industry wherein the website operates and the same is likely to get developed in future. Thus, with this notion, it can be asserted that the state of competitive rivalry in case of Yelp is much high. In this regard, the prime competitors of Yelp can be ascertained as Yahoo! Inc. and Citysearch among others (Zhang, 2009). Threat of Substitution. Threat of substitution means risk of replacement or risk of changing the original state of products. There exists fewer possibilities towards switching or changing the products and/or services provide by Yelp that may be due to the reason of lower performance of the same and decreased reviewing of the website by the users (Zhang, 2009). Thus, it can be affirmed that the factor concerning threat of substitution in the case of Yelp is high. Threat of New Competitors. “Threat of new competitors” in relation to the case of Yelp is identified to be quite high, as there exists a strong business market competition in the respective industry. It is worth mentioning that in order to lessen the crucial issue relating to the threat of new competitors, Yelp is required to form a strong distribution network. Due to weak distribution network, goods are often found to be expensive and the same are not obtained by the customers. The cost of building a strong distribution network will definitely aid Yelp to strengthen its brand name, which tends to generate greater value to the customers (Zhang, 2009). Value Chain, Core Competencies and Synergies, Technology, Legal and Social Challenges Value chain is regarded as the approach of creating greater values to the customers. In relation to Yelp, the value chain activities of this online website in relation to operations can be ascertained as the employment of highly qualified personnel and improved technology in the context of research and development process. Moreover, the other activities relating to value chain of Yelp with regards to inbound logistics can be apparently traced as developed operations in the form of promoting final services and providing greater customer support by providing them with relevant advices and obtaining feedbacks of the customers among others. In relation to outbound logistics, the company mainly relies on its suppliers towards performing varied operational functions. Identifiably, Yelp mainly provides online related services to its customers with regards to any query about a particular product and/or service. Specially mentioning, the marketing & sales operations mainly constitute a lifecycle entailing the aspects trial along with consumption, consideration and awareness. With regards to identify the core competencies and synergies of Yelp, it can be affirmed that the online website has the ability to build local communities in various cities in the US and inspire the members to write reviews on local services. Yelp also has the ability to attract the business customers for conducting online business. In this regard, the website successfully developed the ability to create local services in the new cities and influenced people to write reviews. In terms of technological aspect, it can be affirmed that website and online social network are deemed to be the useful distribution channels for Yelp. It assigns community managers to grow the size of the local community due to increasing level of business of Yelp in new cities. Yelp has invested huge figure of funds in research and development segment, which might bring financial challenges to the company by a considerable extent. It is worth mentioning that the necessity of maintaining as well as following varied legal standards and the prevalence of cultural differences may appear as social and legal challenges for Yelp at large (Zhang, 2009). Financial Analysis during (2010-2014) Statement of Operations While conducting the financial analysis of Yelp during the four years period i.e. of 2010-2014, it can be found that the revenue of Yelp show an increasing trend until the year 2013, which again declined in the year 2014. This can be justified with reference to the fact that in the year 2010, the revenue of the website was reckoned as 47.73 USD million and the same was amounted to 83.29 USD million in the year 2011. Thus, it can be affirmed that the revenue of the company during the period 2010-2011 went up by 74.5 %. Similarly, in the years 2012, 2013 and 2014, the same had been recorded as 137. 57 USD million, 232.99 USD million and 102.45 USD million respectively. However, with the increased level of revenues, the cost of sales of the Yelp also went up by 85.9% and 63.4 % respectively during the years 2010-204. Justifiably, the cost of sales in the year 2010 was amounted to 5.47 USD million and the same can be reckoned as 10.17 USD million in the year 2011. Similarly, in the year 2012, the cost of sales of Yelp was 17.15 and the same in 2013 was amounted to 28.02 USD million (Market Watch, 2014; Yelp Inc, 2014). Apart from these, the total operational expenses of Yelp in 2010 was 52.8USD million, 87.6 USD million in 2011 and in 2012, the same was reckoned as 144.1 USD million. However, in the year 2013, the operational expense of the website was amounted to 224.4 USD million and in the year 2014, the same has been recorded as 91.74 USD million. This implies that the operational expenses of the company went down by -54.3 % during the period 2013-2014. On the other hand, the net margin of Yelp in 2010, 2011 and 2012 can be recorded as -9.74 USD million, -16.86 USD million and -19.11 USD million respectively. In the year 2013, the net income of Yelp was ascertained to be -10.07 USD million and -2.07 million in the year 2014. This implies that the net income of the company went down by -38.6 % during the period 2013-2014. The gross margin of Yelp in 2010 was 44.6 USD million, 77.4 USD million in 2011 and 127.6 USD million in the year 2012. In the year 2013, the gross margin of the website can be ascertained as 216.4 USD million and 96.281 USD million in 2014. Finally, the operating income of Yelp in 2010, 2011, 2012, 2013 and 2014 can be reckoned as -8.2 USD million, -10.2 USD million, -16.5 USD million, -7.9 USD million and 45.44 USD million respectively. In relation to the above financial analysis, it can be ascertained that the revenue of Yelp has increased, but the cost of sales went down by an average of nearly -35 % over the preceding five years. Therefore, the website should build new policies for developing its product sales. In the year 2010, the sale growth was recorded as 85%, which went by 69% in relation to Yelp (Market Watch, 2014; Yelp Inc, 2014). Balance Sheet With regards to the conduct of financial analysis of Yelp relating to balance sheet, it can be ascertained that the total assets of Yelp in the year 2010 was amounted to 33.97 USD million, 43.8 USD million in 2011 and in the year 2012, the same can be recorded as 187.7 USD million. Likewise, in 2013, the total assets of Yelp was amounted to 515.98 USD million and 577.4 USD million in the year 2014. The current assets in 2010 of Yelp was amounted to 35.4USD million, 31.73 USD million in 2011 and 111.77 USD million in the year 2012. In the year 2013, the same can be recorded as 416.83 USD million and 404.75 USD million in 2014. Apart from these, the total liabilities of Yelp in the year 2010 was amounted to 6.66 USD million, 12.73 USD million in 2011 and 22.03 USD million in 2012. In the year 2013, the same can be reckoned as 29.49 USD million and 38.78 million in the year 2014. The current liabilities of Yelp in 2010 was recorded as 6.65 USD million, 12.73 USD million in 2011 and 21.51 USD million in 2012. However, in the year 2013, the same can be reckoned as 24.99 USD million and 31.79 USD million in 2014. Therefore, from the above analysis, it can be affirmed that the total liabilities as well as current liabilities of Yelp have increased over the previous five years, which is not good at all for the firm. Working capital denotes required funds to conduct a business or to run a business. The working capital of Yelp in 2010 was recorded as 28.75 USD million, in 2011, it was 19 USD million and in 2012, the same amounted to 90.19 USD million. In 2013, the working capital of Yelp was recorded as 391.84 USD million. In order to improve the economic growth of the firm, Yelp need to make greater control of the increased level of liabilities (Market Watch, 2014). The above analyzed financial data of Yelp has been analyzed in the form of the following tabular representation: CONSOLIDATED STATEMENT OF OPERATIONS (In USD Millions) Description 2010 2011 2012 2013 2014 (Till Sep) Revenue 47.73 83.29 137.57 232.99 102.45 Cost of Sale 5.47 10.17 17.15 28.02  61.74 Operating Expenses SG&A Expense Depreciation Intangibles Amortization Research Development General & Administrative Selling Others 52.8 50.47 2.33 87.6 83.36 4.24 144.1 136.92 5.9 1.32 224.4 212.92 7.9 3.56  91.74 17.40 69.74 4.6 Net Income -9.6 -16.7 -19.1 -10.1 36.37 Gross profit 44.6 77.4 127.6 216.4 96.28 Operating Income -8.2 -10.2 -16.5 -7.9 45.44 SUMMARY BALANCE SHEET DATA (In USD Millions) Total Assets Cash & Cash Equivalents Net Receivables Other Current Assets Plant & Equipment Intangible Assets Other Assets Goodwill Cash Securities Receivables Depreciation 33.97 25.87 6.61 1.49 43.82 21.74 8.26 1.73 9.89 1.3 2.09 187.7 95.12 11.74 4.48 14.80 5.94 7.02 48.61 515.98 389.76 21.31 5.75 30.67, 5.23 3.55 59.70  577.4 9.49 70.23 60.35 15.34 290.57 73.53 31.18 26.89 Current Assets 35.4 31.73 111.77 416.83  404.75 Total Liabilities Accounts Payable Other Current Liabilities Accrued Expenses 6.66 1.03 5.63 12.73 10.66 2.07 22.03 17.26 2.86 22.03 22.37 2.62  38.78 2.23 2.15 27.42 Current liabilities 6.65 12.73 21.51 24.99  31.79 Working Capital 28.75 19 90.19 391.84  372.96 From the above tabular representation, it can be affirmed that though the revenue of Yelp.com has increased, the growth of sales has been decreased over the previous five years. With the increased level of revenue, it is quite clear that the website is making money by the deliverance of products and/or services in accordance with the preferences of the customers. Apart from this, it can also be apparently observed that the current assets also increased year by year along with total assets liabilities. From the below presented stock chart, it can be stated that the stock rate for Yelp has increased in recent times. Therefore, with this notion, it is quite apparent that the company is making money with the increased level of revenues. Stock Chart The follwing graphical representation represents the stock chart of Yelp durng the year 2014: Source: (Nasdaq.com. 2014) The above portrayed stock chart reveals up and down of the stock rate of Yelp. It can be affirmed from a broader understanding that the chart is identified to move upwards at the time when the company attains maximum profit in terms of raising revenue. On the other hand, it can also be apparently observed that the stock rate undergoes in a downward trend due to increased level of liabilities as well as assets, which experience by the company while performing its varied operational functions in the respective industry (Nasdaq.com. 2014). Based on the above trends, it can be inferred that the stock price of Yelp might have decreased due to the adverse impacts of financial crisis on the overall performance of the company. However, by taking into concern the present economic conditions and the performance of Yelp, investments can be made upon this company at this time. Future Prospects The meaning of future prospects means the possibility of a company to attain maximum growth in future. Through the financial analysis, it can be affirmed that Yelp can attain maximum growth in future by lessening its expenses and most vitally diminishing the increasing level of liabilities over assets. By taking into concern the fact that the revenue as well as the assets of Yelp has increased gradually over the previous years, the future growth of this company can be judged based on this notion. It is worth mentioning that for future growth prospect, the company needs to improve its income and lessen the increased level of operational expenses. Thus, it is projected that the above stated aspects will not aid Yelp towards developing its future prospect, but will also assist in attaining superior competitive position over chief business market competitors. Conclusion Based on the above analysis and discussion, it can be affirmed that the strategies as well as the business model follow by Yelp might certainly make the investors to invest extensive amounts on the company. Moreover, it can be inferred that the present financial conditions of the company would also attract the financers to perform the aforesaid activity. References Luca, M. (2011). Reviews reputation and revenue: the case of yelp.com. Harvard Business School, 1-40. Market Watch. (2014). Yelp Inc. annual financials. Retrieved from http://www.marketwatch.com/investing/stock/yelp/financials Nasdaq.com. (2014). Yelp Inc. stock chart. Retrieved from http://www.nasdaq.com/symbol/yelp/stock-chart Tucker, T. (2011). Online word of mouth: characteristics of Yelp.co reviews. Elon Unicversity, 2(1), 37-42. Yelp Inc. (2014). Income statement. Retrieved from https://finance.yahoo.com/q/is?s=YELP Zhang, L. (2009). Business model analysis for online social companies case study: run to shop oy. Logistics Master’s Thesis, 1-96. Read More