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Home & Local Advertising Revenues Drive Yelp Q1 Earnings

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Yelp Inc. (YELP - Free Report) is increasingly benefiting from its Home and Local services, which has been the key growth driver in the last reported quarter. Notably, 32% of the total advertising revenues were from this segment.

‘Request-A-Quote’ is the main driver of the Home & Local category which increased 30% year over year. The company notes that increase in searches for “smart home” devices backed by Home Automation and Security Systems is a tailwind.

Per the company’s latest Local Economic Outlook in the first quarter of 2018, share of new business openings was dominated by Home services throughout the top U.S. cities on the list.

The growing adoption of this category is further evident from the company’s finding, per which 75% of its app users who searched in the Home & Local category had previously searched in the Restaurant category.

Shares of Yelp returned 5% in the year-to-date period, as against the industry’s loss of 2.8%.



 

Let’s Take a Look at the Q1 Earnings

Yelp reported first-quarter net loss of 3 cents per share, as compared to a net loss of 5 cents per share year over year.  
    
Net Revenues increased 13% year over year to $223 million, which surpassed the Zacks Consensus Estimate of $220 million. Significant increase in the advertising revenue and advertiser accounts primarily drove revenue growth.

Excluding Eat24, Nowait and Turnstyle net revenues witnessed an increase of 22% year over year.

The company announced ‘Yelp Custom Ads’ feature allowing business owners to customize their ads in the ad campaigns. This is already enhancing client satisfaction. The company also introduced ‘Yelp Ads Certified Partner’ program allowing third-party marketing agencies to manage ad campaigns of their small and mid-sized business clients.

Top-Line Details

Advertising revenues (96% of total revenues) increased 20.3% year over year to $214 million, driven by an increase in sales productivity and advertising customers. Self-serve channel witnessed fastest growth, followed by national and local. Paying advertiser accounts are at 177K, up 27.3% year over year.

Transaction revenues plunged 79% year over year to $3.8 million, mainly due to the sale of Eat24 to GrubHub (GRUB - Free Report) in October 2017. In the first-quarter, Eat24 contributed $17 million (94% of transaction revenues) in Transaction revenues. With the GrubHub partnership, the company has around 80,000 orderable restaurants available on its Yelp app.

Other services revenues soared 135% to $5 million, driven by an increase in the customer base of Nowait and Turnstyle along with the extended growth from Yelp reservations.

In the first-quarter, cumulative reviews rose 22% year over year to more than 155 million. App unique devices grew 17% year over year to 30 million on a monthly average basis.

Yelp Inc. Revenue (TTM)

Yelp Inc. Revenue (TTM) | Yelp Inc. Quote

Operating Details

Yelp reported adjusted EBITDA of $33 million, up 9.7% year over year, driven primarily by advertising revenue growth.

Sales and marketing (S&M) expenses increased 10% year over year to $120 million, driven by expenses corresponding to increase in the number of sales employees from the year ago period.

Product development costs surged 29% to $51 million, driven by increasing investments in Yelp customer experience and supporting infrastructure and systems.

General & administrative (G&A) expenses increased 18% to $32 million year over year, driven by increase in headcount.

Balance Sheet & Cash Flow

Yelp exited the first-quarter with $814.6 million in cash, investments & marketable securities, down from $821.2 million at the end of the prior quarter.

Net cash flow from operating activities was $38 million, compared with $41 million in the previous quarter.

Guidance

For the second quarter, Yelp expects revenues between $230 million and $233 million. Adjusted EBITDA is expected in the range of $39-$42 million.

For fiscal 2018, net revenues are anticipated in the range of $943-$967 million. Adjusted EBITDA is expected between $179 million and $188 million.

The company believes its focus on restaurants will help increase its customer base and their engagement of its app user base going forward.

Zacks Rank & Stocks to Consider

Yelp carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector include Lam Research Corporation (LRCX - Free Report) and Micron Technology (MU - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Lam Research and Micron is projected to be 17.7% and 10%, respectively.

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