Yelp Inc. (YELP - Free Report) is scheduled to report second-quarter 2018 results on Aug 8.
Notably, the company beat estimates in each of the trailing four quarters, delivering an average positive surprise of 586.67%.
In the last reported quarter, the company came up with a positive earnings surprise of 66.67%.
Let's see how things are shaping up for the upcoming announcement.
Factors Likely to Drive Results
Yelp is benefiting from its partnership with GrubHub, which provides users access to a significant number of restaurants for food ordering. This is expected to boost transaction revenues of the company and per-order profitability.
The company continues to generate high revenues from its acquisitions of Nowait and Turnstyle, last year,
Moreover, we note that revenues from advertising have witnessed an uptrend with the addition of 14,000 paid advertising accounts in the last reported quarter. This is likely to continue in the second quarter as well.
The company is also benefiting from Home & Local Services segment of the business which has continued to witness strong growth, primarily driven by the popularity of Request-A-Quote.
However, Yelp has been incurring significant losses. Increase in operating expenses due to an expected increase in headcount, product development and sales & marketing expenses remain an overhang on the bottom line. The continuously declining gross margin is likely to keep the margins for the second quarter under pressure.
Additionally, divestment of the Eat24 business to GrubHub last October is an overhang on the company’s Transaction segment.
Moreover, competition for ad dollar from giants like Google, and Facebook is a major threat.
Further, the company depends mostly on Google to drive traffic to its website. However, Google’s practice of intentionally pushing other sites down in the search rankings on both its website and app continues to remain a concern.
What the Zacks Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Yelp has a Zacks Rank #3 and an Earnings ESP of -4.64%.
Stocks to Consider
Here are some stocks that you may consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:
Science Applications (SAIC - Free Report) with an Earnings ESP of +1.70% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vishay Intertechnology (VSH - Free Report) with an Earnings ESP of +2.41% and a Zacks Rank #1.
Avnet (AVT - Free Report) with an Earnings ESP of +1.37% and a Zacks Rank #2.
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