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Yelp Shares Move Lower Ahead of Earnings: What to Expect

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Shares of Yelp Inc. (YELP - Free Report) ticked down 0.3% during regular hours Tuesday, a day before the crowd-sourced review forum releases its latest quarterly earnings report.

Yelp shares have shed 7.1% in the last year as the company continues to grapple with an increase in operating expenses and diminishing gross margins. But Yelp is also benefiting from its partnership with GrubHub (GRUB - Free Report) , which is providing users access to a significant number of restaurants for food ordering.

Yelp’s advertising revenues have been supported by the addition of 14,000 paid accounts last quarter. But investors should note that similarly to other players in the internet space, Yelp is in a tough fight with giants like Alphabet (GOOGL - Free Report) and Facebook (FB - Free Report) to maintain its foothold.

Tuesday’s movement reflects investor apathy heading into Wednesday’s report. But what should we expect from its soon-to-be-reported quarter? Let’s take a closer look.

Earnings Outlook

Yelp will release its Q2 fiscal 2018 results after the market closes on Wednesday. Here’s what analysts are expecting, according to our Zacks Consensus Estimates:

Earnings: YELP is projected to report earnings of $0.25 per share, which would represent 177.8% growth from the year-ago period.

Estimate Revisions: The firm hasn’t seen any recent earnings estimate revisions for the current quarter and next quarter. However, it has seen split revision activity for the current fiscal year and next fiscal year. It is worth noting that the most recent revisions are positive, and came in just the last week.

Revenue: Consensus estimates have YELP’s Q2 revenue pegged at $231.9 million. This would mark growth of 11% year-over-year.

Valuation

YELP is trading at 28.9x forward 12-month earnings heading into today’s report. This represents a premium compared to the “Internet Content” industry’s average of about 19.9x, but is still far “cheaper” than the stock has been over the last few years.

In the past year, YELP has traded as high as 482x and as low as 28.9x. Its 52-week median earnings multiple is 141.3x.

Bottom Line

Yelp has averaged an earnings surprise of 586.7% over the last four quarters as it continues to destroy analyst expectations. Still, the stock hasn’t moved much over that time, as many fundamental concerns about the firm’s profitability remain. It seems that the market still needs to see more before it is convinced that Yelp is as compelling as its recent earnings numbers indicate.

YELP shares not performed particularly well in the past year, so many investors may be more interested in sitting this one out and watching for any exciting news. Analyst revision activity for the quarter has been muted, and YELP has a Zacks Earnings ESP (Expected Surprise Prediction) of -4.64%.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Given the stock’s current Zacks Rank of #3 (Hold), this Earnings ESP value doesn’t leave us particularly confident about Yelp’s chances at beating estimates going into Wednesday afternoon’s report. Still, it is worth noting that Yelp has notched 8 quarters of consecutive earnings outperformance.

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