Stock Analysis & Ideas

Yelp Innovations Paying Off as Earnings Beat Projections

Shares of Yelp (YELP) have mostly treaded water the past few months, but that may be about to change. Yelp stock spiked by 11% to $42.71 per share on Friday, a day after the company released its latest quarterly earnings.

So, let’s go over the results. Revenues jumped by 52% to $257.2 million and exceeded Wall Street expectations, which called for $246 million. The growth rate was actually the highest since 2015.

In terms of the bottom line, Yelp posted earnings of five cents a share, while the analysts’ consensus was for a loss of nine cents a share. Last year, the company reported a loss of 33 cents a share. (See Yelp stock charts on TipRanks)

The cash flow from operating activities was $50 million in the quarter, bringing the cash balance to $558 million. Yelp has also continued with its share buybacks. Since the fourth quarter of 2020, the purchases have totaled about $174 million.

Yelp believes that this growth is likely to continue. For the full year, the forecast is for revenues of $1.01 billion to $1.03 billion and adjusted EBITDA of $200 million to $220 million. This compares to the prior guidance of $1 billion to $1.02 billion and adjusted EBITDA of $175 million to $195 million.

A Different Yelp

In 2019, Yelp launched a major strategic initiative to improve innovation and lower costs. COVID-19 only accelerated the efforts.  

The good news is that the endeavors are starting to pay off. For example, Yelp’s Request-A-Quote product has been a nice driver for monetization. There was 30% growth quarter-over-quarter.  

Then there is the Yelp Audiences platform, which makes it possible for advertisers to get leads from high-purchase intent customers in real time. The platform is still in the early stages, but the annual run-rate for advertising is already over $15 million.  

Investments in AI (Artificial Intelligence) and ML (Machine Learning) have also been critical. These technologies have proven effective in improving the bidding and personalization of the user experience. 

According to the Yelp shareholder letter, “These investments have led to lower Average CPCs (cost-per-clicks) and improvements in retention rates in turn, which has positively impacted both the top and bottom lines.” In the latest quarter, the average CPC dropped by 20% and ad clicks jumped by 87% on a year-over-year basis.

Bottom Line On Yelp Stock

No doubt, Yelp has a powerful platform. There are 5.4 million claimed local business locations, 224 million cumulative reviews and 528,000 paying advertising locations.

However, there is a wild card: the spread of the Delta variant of COVID-19. Even if there are no lockdowns, consumers may still hold back – and this could pressure the growth.

So for now, it may be best to be cautious with Yelp stock.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, Yelp comes in at a Hold. Out of six analyst ratings, the stock has one Buy, four Holds and one Sell. At $42, the average Yelp price target implies 8.16% upside potential.

Disclosure: Tom Taulli does not have a position in Yelp stock.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

Tired of arriving late to the Big Returns Party?​
Most investors don’t have major gainers like TSLA or NVDA on their radar from the start.
The profusion of opinions on social media and financial blogs makes it impossible to distinguish between real growth potential and pure hype.
​​For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate.​
Learn More