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Yelp Inc. recently expanded its presence in Eastern Europe. The online information service provider announced the availability of Yelp in Czech Republic, where residents can create accounts on Yelp.cz to post their views about local businesses and services.

Yelp’s free application for Google’s Android and Apple’s iOS devices will be available to the Czechs. The company announced that free Yelp for business owners will also be available to the thriving business community in the Czech Republic.

Currently, Yelp.cz is available in Czech, English, Danish, Dutch, French, Finnish, German, Italian, Norwegian, Spanish, Swedish, Polish, and Turkish languages. We believe that its availability in so many languages will provide significant competitive edge to Yelp against local players.

The Czech Republic is currently stuck in recession. The International Monetary Fund (IMF) expects growth to remain weak throughout 2013. However, the country’s budget deficit is expected to fall from 4.4% of its gross domestic product (GDP) in 2012 to 2.8% this year.

Although we believe that the expansion into Czech Republic will boost Yelp’s customer base, the current sluggish macro-economic condition will not boost top-line growth in the near term.

Nevertheless, Yelp will continue to expand in the rapidly growing markets of Eastern Europe and Asia. This will help the company to offset sluggish growth in the domestic market. In the first quarter of 2013, the U.S. contributed 94.0% of the revenues, while the remaining came from international markets.

Currently, Yelp has a presence in 41 international markets. The company expects to continue to invest heavily in sales and marketing (up 50.0% year-over-year) to grow domestically and internationally. Yelp also expects to spend significantly on product development (up 75.0% year-over-year) to expand its platform in mobile applications.

Although we believe that this incremental spending will hurt profitability in the near term, the expanding product platform will help Yelp to capitalize on the significant growth opportunity from higher ad spending going forward. According to research firm Forrester, ad spending on mobile devices will represent 29% of total online ad spending in the U.S. by 2018.

Yelp’s increasing mobile penetration (approximately 45.0% of all Yelp searches were through mobile) will help the company to better monetize the platform going forward. Additionally, Yelp’s partnerships with Apple and Facebook and continuing international expansion are other positives going forward.

Currently, Yelp has a Zacks Rank #3 (Hold).

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