It has been about a month since the last earnings report for Yelp (YELP). Shares have lost about 6.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Yelp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Yelp Reports Q2 Results
Yelp second-quarter 2019 earnings of 16 cents per share surged 30% year over year and also surpassed the Zacks Consensus Estimate of $12 cents, driven by higher net income and lower share count owing to robust share repurchases.
Revenues of $247 million missed the Zacks Consensus Estimate of $248 million but increased 5% year over year.
The company’s focus on expanding its product portfolio is a key driver. Notably, its two new products — Verified License and Business Highlights — added more than 25,000 active paying locations in the quarter. Moreover, these products boosted the number of paying advertising starts in the Self Serve channel.
The launch of Yelp Portfolios in June is also making the management optimistic.
Advertising revenues (96% of total revenues) rose 5% year over year to $238 million, driven by growth in the number of paying advertising locations and improved productivity from advertising sales force.
Paying advertising locations grew 6% year over year to 549,000 sites. Also, paying advertiser accounts were 194,000, up 1.5% year over year.
Revenues from multi-location advertisers grew 21% year over year, backed by growth across mid-market, franchise and particularly, national advertisers.
Yelp is more and more benefiting from its Home & Local services, which contributed 35% to advertising revenues. Home & Local category was mainly boosted by revenues from ‘Request-A-Quote’, which surged 40% year over year.
Transaction revenues declined 25% year over year to $3 million due to revenue loss as a result of Eat24’s sale to Grubhub.
Other services revenues improved 15% to $6 million, banking on growth of Yelp Reservations and Yelp Waitlist.
Cumulative reviews rose 18% year over year to more than 192 million. App unique devices also climbed 15% year over year to 37 million on monthly average basis.
The company delivered 42% more paid ad clicks to advertisers while reducing their average cost-per-click (CPC) by 25%.
Yelp reported adjusted EBITDA of $55 million, up 17% year over year. Moreover, adjusted EBITDA margin expanded 200 bps to 22%, backed by controlled operating expenses.
Balance Sheet & Cash Flow
Yelp exited the second quarter with $458 million in cash, cash equivalents & marketable securities, down from $626 million at the end of the prior reported quarter.
Net cash flow from operating activities was $457 million compared with $41 million in the sequential quarter.
During the second quarter, the company repurchased nearly 8.8 million shares for $295 million. As a result, it lowered its outstanding shares by 12% starting this year.
For the third quarter, Yelp expects a revenue rise in the range of 8-10% while adjusted EBITDA margins to increase 1-2 percentage points year over year.
The company reiterates its 8-10% revenue growth prediction for 2019
Adjusted EBITDA margin is projected to improve 2-3 percentage points for the full year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -13.82% due to these changes.
Currently, Yelp has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Yelp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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