It has been about a month since the last earnings report for Yelp (YELP). Shares have added about 10.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Yelp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Yelp Reports Q3 Results
Yelp third-quarter 2019 earnings of 14 cents per share missed the Zacks Consensus Estimate by 26.3% and fell 22.2% year over year.
Revenues of $262 million also lagged the Zacks Consensus Estimate of $263 million. However, the figure increased 8.9% year over year driven by higher advertising revenues.
Advertising revenues (96% of total revenues) increased 9% year over year to $253 million. Paying advertising locations grew 7% year over year to 563K sites.
Self-serve revenues grew roughly 40% in the reported quarter.
The company benefited from rapid adoption of its products by local advertisers. At the end of the reported quarter, subscribing locations for Verified License and Business Highlights more than doubled on a sequential basis.
Revenues from multi-location advertisers grew 21% year over year, backed by growth across mid-market and particularly national advertisers.
Yelp is more and more benefiting from its Home & Local services. Revenues grew at mid-teens rate in the reported quarter. Home & Local category was mainly boosted by revenues from ‘Request-A-Quote’, which surged 30% year over year.
Transaction revenues were $3 million in the third quarter of 2019, a slight increase from the year ago quarter.
Other services revenues improved 14% to $6 million, banking on growth of Yelp Reservations and Yelp Waitlist.
Cumulative reviews rose 17% year over year to 199 million. App unique devices also climbed 11% year over year to 38 million on monthly average basis.
The company delivered 42% more paid ad clicks to advertisers while reducing their average cost-per-click (CPC) by 22%.
Yelp reported adjusted EBITDA of $58 million, up 16% year over year. Moreover, adjusted EBITDA margin expanded 140 basis points (bps) on a year-over-year basis to 22%, driven by controlled operating expenses.
Balance Sheet & Cash Flow
As of Sep 30, 2019, Yelp’s cash, cash equivalents & marketable securities were $417 million, down from $450 million as of Jun 30.
Net cash flow from operating activities was $51 million compared with $14 million in the previous quarter.
During the reported quarter, Yelp repurchased nearly 2.3 million shares for $77 million.
For the fourth quarter, Yelp expects revenues to increase in the 11-13% range year over year. Moreover, adjusted EBITDA margin is expected to increase 2-3 percentage points on a year-over-year basis.
The company reiterated its 8% revenue growth projection for 2019.
Adjusted EBITDA margin is projected to improve 2-3 percentage points for the full year.
Yelp remains on track to achieve the $25 million in annualized savings it sated at the beginning of the year. This is expected to boost adjusted EBITDA margin.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -16.83% due to these changes.
Currently, Yelp has a nice Growth Score of B, 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.
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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