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Yelp Inc. (YELP - Snapshot Report) reported loss per share of 8 cents in the fourth quarter of 2012, significantly narrower than the year-ago quarter loss of 56 cents per share. Including stock-based compensation but excluding one-time items, loss per share came in at 6 cents, wider than the Zacks Consensus Estimate of 4 cents loss per share.

Revenues

Revenues for the quarter surged 65.2% from the year-ago quarter to $41.2 million. Reported revenues not only surpassed management’s guided range of $40 million-$40.5 million, it was also ahead of the Zacks Consensus Estimate of $40 million.

In the fourth quarter, Yelp’s local revenues shot up 87% on a year-over-year basis to $33.9 million while other revenues increased 29% from the year ago quarter to $2.2 million. Brand revenues remained flat on a year-over-year basis at $5 million.

During the quarter, Yelp expanded its base in Poland and Turkey, thereby extending its services in 20 countries. Yelp continued to strengthen its mobile apps services with its partnership with Apple (AAPL - Analyst Report).

Margins

Yelp reported adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of $1.8 million compared to a loss of $0.02 million in the year-ago quarter.

Sales and marketing expenses escalated 59.3% year over year to $25.5 million. The majority was spent on enhancing sales and marketing headcount in order to drive business in the new markets.

Product development costs soared 97.5% year over year to $6.2 million, while general & administrative expense surged 49.1% from the year-ago quarter to $7.8 million.

Higher level of investments hurt profitability as Yelp reported an operating loss of $3.9 million in the quarter (including stock-based compensation but excluding one-time items). However, operating loss widened from the year-ago quarter loss of $2.8 million.

Net loss (including stock-based compensation but excluding one-time items) came in at $4.2 million, wider than $2.9 million incurred in the year-ago quarter.

Balance Sheet

Yelp exited the quarter with $95.1 million in cash & cash equivalents. Cash used in operations was $2.8 million in fiscal 2012.

Guidance

Yelp expects revenues in the range of $44 million to $44.5 million for the first quarter of 2013. Adjusted EBITDA is expected to be in the range of $1.25 million to $1.5 million for the same period.

For the fiscal 2013, the company expects revenues to be in the range of $210 million to $212 million, with adjusted EBITDA estimated between $20 million and $22 million.

Recommendation

Yelp’s positive guidance reflects strong growth in user base (particularly mobile), expansions into new markets (both domestic & international) and partnerships with Apple and Microsoft’s (MSFT - Analyst Report) Bing. We believe that mobile presents a significant monetization opportunity for Yelp and the partnerships with Apple and Microsoft will boost top-line growth from this segment over the long term.

However, increasing investments and competition from Yahoo (YHOO - Analyst Report) are expected to drag profitability in the near term. As Yelp continues to explore and expand into new markets, sales & marketing expenditure is expected to increase significantly, thereby hurting margins going forward.

Currently, Yelp has a Zacks Rank #3 (Hold).

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