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What's in the Offing for Yelp this Earnings Season?

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Yelp Inc. (YELP - Free Report) is set to report second-quarter 2017 results on Aug 3. The company has beaten the Zack Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 171.73%.

Last quarter, the company came up with a positive surprise of 25.00%. Revenues increased 24% year over year to $197.3 million but missed the Zacks Consensus Estimate of $198 million.

For second-quarter 2017, total revenue is expected to be in the range of $202–$206 million. However, owing to the weakness in local revenue retention, the company reduced its guidance for 2017. Revenues are anticipated to be in the range of $850-$865 million, down from prior guidance of $880-$900 million.

Notably, Yelp has lost 13.2% year to date against 37.3% growth of its industry..

Let's see how things are shaping up for this announcement.

Factors at Play

Yelp is facing a slowdown in its local advertisement business over the last few quarters owing to the highly competitive environment in which it operates. The company faces stiff competition from major players like Amazon (AMZN - Free Report) , Facebook and Alphabet among others. All these companies are increasing their efforts to get a bigger share of advertising dollars.

Moreover, Yelp witnessed weaker-than-expected revenue retention from local ad business in the last quarter. Hence, local revenue is anticipated to stay under pressure.  Yelp is also facing headwinds in the international business.

Moreover, Nowait and Turnstyle acquisition will take time to contribute meaningfully to its top line in our view.

However, accelerating consumer traffic across app, desktop and mobile is a positive for the company. Moreover, strong activity from Request-A-Quote and Eat24 is also favorable for the company’s results in the soon-to-be reported quarter.

Yelp Inc. Price and EPS Surprise

Yelp Inc. Price and EPS Surprise | Yelp Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Yelp is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Yelp’s Earnings ESP is +133.33%. This is because the Most Accurate Estimate is currently pegged at earnings of 1 cent per share, which is better than the Zacks Consensus Estimate of a loss of 3 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Yelp carries a Zacks Rank #4 (Sell).We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a couple of companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Broadcom (AVGO - Free Report) has an Earnings ESP of +2.57% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CACI International (CACI - Free Report) has an Earnings ESP of +1.83% and carries a Zacks Rank #2.

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