Yelp Enters Asia

Yelp Inc. (YELP - Snapshot Report) recently entered the Asian market. The online information service provider announced the availability of Yelp in Singapore, where residents can create accounts on Yelp.com.sg to post their views about local businesses and services.

Yelp’s free application for Google’s (GOOG - Analyst Report) Android and Apple’s (AAPL - Analyst Report) iOS devices is available. The company announced that free Yelp for business owners will also be available to the thriving business community of Singapore.

Currently, Yelp Singapore is available only in some European languages (namely English, French, German, Danish, Finnish, Norwegian, Spanish, Swedish and Italian).

We believe that to achieve significant popularity in Singapore and fight competition from local providers, Yelp needs to add Asian languages, particularly Chinese, Malay and Tamil, which are the country’s official languages.

Nevertheless, we believe that the expansion may boost Yelp’s top-line growth, due to the strong macro-economic growth potential of Singapore, huge English language based customer group and higher per capita gross domestic product (GDP).

Singapore is one of the fastest-growing countries in Southeast Asia. According to a study by Knight Frank and Citi Private Bank, Singapore is projected to be the wealthiest country in terms of GDP per capita by 2050, surpassing Hong Kong (#2), Taiwan (#3), South Korea (#4) and the U.S. (#5).

According to a recent report from Asian Development Bank, growth in Southeast Asia, (particularly Singapore, Malaysia, Philippines and Indonesia) continues to remain robust particularly due to strong private consumption and increasing domestic demand. Moreover, the region’s stable government policy will also support continuing growth over the long term.

We believe that Yelp will continue to expand in the rapidly growing markets of Asia, particularly Southeast Asia. This is due to the fact that most of Yelp’s operating markets (US and some European countries) have been facing macro-economic weakness for some time that is hurting its top-line growth.

Although Yelp has been pretty aggressive in exploring new markets (launched service in 6 overseas markets including Denmark, Finland, Norway and the United Kingdom during the second quarter), none of the international markets generated revenue during the quarter.

Currently, Yelp has a presence in 39 international markets. The company spent approximately $5.4 million in the first six months of 2012, adding new sales associates and personnel. Yelp expects to spend $15.0 million on international expansion during 2012. We believe that this incremental spending will hurt profitability in the near term.

However, expansions in the rapidly growing markets of Asia, strong growth from among the mobile user base, and partnerships with Apple and Microsoft (MSFT - Analyst Report) will provide significant monetization opportunity over the long term.

We remain Neutral on Yelp over the long term (6-12 months). Currently, Yelp has a Zacks #2 Rank, which implies a Buy rating in the short term.