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Yelp Rides on Growth in Paid Advertiser Account, Buyouts

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On Aug 29, we issued an updated research report on San Francisco-based Yelp Inc. (YELP - Free Report) .

The company is an online platform, which provides information through online community offering social networking. The company is on a growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals.

Notably, Yelp has beaten the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 349.67%.

The company reported strong second-quarter 2018 results. The top line and bottom line surpassed the respective estimates and improved year over year. Management also provided optimistic guidance for the third quarter and raised 2018 guidance.

We believe that the impressive results and the guidance will help sustain the stock’s momentum. Notably, shares of Yelp have gained 12% year to date against the industry’s decline of 10%.


Advertising Revenues – A Key Growth Driver

Yelp is gaining traction from its shift toward selling advertising plans without any fixed duration. Notably, this strategy resulted in a robust increase in paying advertiser accounts, which drove its recently-reported quarterly results.

Notably, Advertising revenues, which contribute 96% of total revenues, increased 21% year over year to $226 million, driven by an increase in local salesforce and transition to non-term advertising. Paying advertiser accounts were at 194K, up 31% year over year, which management mentioned to be the fastest in two years.

The company is increasingly benefiting from its Home and Local services, which has been the key growth driver in the last reported quarter. Notably, 33% of the total advertising revenues were from this segment, mainly driven by revenues from the ‘Request-A-Quote’ offering.

Acquisitions and Partnership – Other Key Catalysts

Yelp’s acquisitions of Nowait and Turnstyle last year are boosting its connection with business owners. We note that consumer-friendly services like reservations, waitlist and Wi-Fi marketing drive subscriptions from businesses.

Yelp is benefiting from its partnership with GrubHub, which provides users with access to a significant number of restaurants available for food ordering on the platform. Revenues earned from GrubHub for transactions originating on Yelp platform is a positive. Moreover, management expects the partnership to improve Yelp's per-order profitability.

Zacks Rank & Other Stocks to Consider

Yelp currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader Computer and Technology sector are Qualys, Inc. (QLYS - Free Report) and Fortinet, Inc. (FTNT - Free Report) , each sporting a Zacks Rank #1 (Strong Buy), and Virtusa Corporation (VRTU - Free Report) , carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Qualys, Fortinet and Virtusa is projected to be 8%, 16.8% and 20% respectively.

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