Valuing high-tech companies

Instead of charging the end customer, Yelp sells local advertising to businesses that register on the website. A basic listing is free, but the company offers paid services, such as enhanced listings with photos and video, a sponsored search (where the company appears early in the consumer’s search results), and a “call to action,” which allows the consumer to schedule an appointment or the business to provide a coupon. In 2014, that local advertising contributed $321 million of the company’s $378 million in revenues.
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There are approximately 66 million small and midsize businesses in Yelp’s target markets. As of 2014, the company had registered 2 million businesses on its site. Of the businesses that registered, only 84,000 were paying clients. With 1 percent market penetration, there is plenty of room for growth.
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BIA/Kelsey, a research and advisory company that focuses on local advertising, estimated that local businesses spent $132.9 billion on advertising in 2013, of which $26.5 billion was placed online.
http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/valuing-high-tech-companies