It has been about a month since the last earnings report for Yelp (YELP). Shares have lost about 9.3% 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 Solid Q4 Results
Yelp reported fourth-quarter earnings of 37 cents per share compared with $1.58 in the year-ago quarter. However, the bottom line beat the Zacks Consensus Estimate of 36 cents.
Net revenues increased 11% year over year to $243.7 million, which also surpassed the Zacks Consensus Estimate of $241 million on the back of seasonal strength in enterprise Advertising revenues. Excluding revenues of Eat24, which was sold to Grubhub in October 2017, revenues grew 12% year over year.
Advertising revenues (96% of total revenues) rose 12% year over year to $235 million, driven by growth in the number of Paying advertising accounts owing to an increase in the size of advertising salesforce and transition to the sale of non-term advertising contracts to local advertisers.
Paying advertiser accounts were 191,000, up 17% year over year, aided by transition to non-term advertising. However, the metric fell sequentially from 194,000.
In the fourth quarter, Paying advertising locations grew 13% year over year to 541,000 sites and increased by 17,000 locations sequentially, propelled by greater strength of national advertisers.
Yelp is more and more benefiting from its Home & Local services, which contributed 33% to advertising revenues. Home & Local category was mainly boosted by revenues from ‘Request-A-Quote’, which surged 44% year over year.
Management noted that the launch of Verified License to woo advertisers in November 2018 at a monthly price point of $30, led to a rapid adoption with more than 3,000 clients adding the feature to their advertising packages. Further, it is witnessing strong retention rates and an improving overall retention for the cost-per-click (CPC) advertisers, who adopted it.
Transaction revenues plunged 37% year over year to $3 million on revenue loss as a result of Eat24’s sale to Grubhub. However, the decline in Transaction revenues was partially offset by revenues earned from Grubhub for transactions originating on Yelp platform.
Yelp’s partnership with Grubhub led to 27% year-over-year growth in overall food orders on the platform while increasing consumers’ repeat orders.
Other services revenues improved 23% to $6 million, banking on growth of Yelp Reservations and Yelp Waitlist.
In the fourth quarter, cumulative reviews rose 20% year over year to more than 177 million. App unique devices climbed 14% year over year to 33 million on monthly average basis, backed by added customization, improved recommendations and new location-based features.
Sales and marketing (S&M) expenses increased 9% year over year to $121 million due to expenses corresponding to higher number of sales employees from the year-ago period. Lower marketing expense as a result of the sale of Eat24 was an upside.
Product development costs escalated 13% to $54 million due to employee cost associated with increased headcount.
General & administrative (G&A) expenses ascended 6% to $30 million year over year on higher headcount.
Yelp reported adjusted EBITDA of $53 million, up 27% year over year. Adjusted EBITDA margin expanded 300 bps to 22%.
Balance Sheet & Cash Flow
Yelp exited the fourth quarter with $755.9 million in cash, cash equivalents & marketable securities, down from $837 million at the end of the prior quarter.
Net cash flow from operating activities in 2018 was $160.2 million compared with $167.6 million in 2017.
During the fourth quarter, the company repurchased nearly 3.1 million shares for $115 million.
The company bought back approximately 4.9 million shares in 2018 for $187 million. The company completed a $200-million repurchase authorization last November.
Yelp announced a $250-million increase in the company’s earlier share repurchase program of $250 million, thereby bringing the total share buyback plan to $500 million.
For the full year, net revenues augmented 11% to $943 million or 18% excluding the impact of the divestment of Eat24.
Advertising revenues were up 17% to $907 million. Transaction revenues tumbled 77% year over year to $14 million. Other services revenues of $22 million soared 45% year over year.
In Home & Local Services, the company saw 29% revenue growth year over year.
For the first quarter, Yelp expects a revenue rise in the range of 4-6% and adjusted EBITDA margins to increase 1 to 2 percentage points year over year.
The company expects to achieve revenue growth of 8-10% for 2019 and hopes to exit 2019 with double-digit revenue growth. Yelp believes that the revenue stream will witness accelerated growth in the second half of 2019 as product sales and retention initiatives will predominate as catalysts over the course of the year.
Transaction revenues are expected to be nearly $15 million and Other services revenues might be around $29 million.
Adjusted EBITDA is projected in high -teens’ growth to mid 20%. Adjusted EBITDA margin is anticipated to improve 2 to 3 percentage points for the full year.
Further, management envisions Yelp to revive double-digit annual revenue growth in 2020. Revenues are likely to rise in mid-teens’ rate on average during the 2018-2023 period.
Yelp also assumes to achieve 2 to 3 percentage points of margin expansion annually and 30-35% adjusted EBITDA margin growth by 2023.
The company’s recent partnerships with industry leaders, namely Visa and GoDaddy are a boon.
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -65.39% 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. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 upward for the stock, and the magnitude of these revisions indicates a downward shift. It comes with little surprise Yelp has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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