It has been about a month since the last earnings report for Yelp (YELP - Free Report) . Shares have lost about 20.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Yelp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Yelp Reports Q1 Results
Yelp first-quarter earnings of 2 cents per share reversed the loss of 3 cents in the year-ago period. Meanwhile, the bottom line matched the Zacks Consensus Estimate.
While net revenues increased 6% year over year to $236 million, the metric met the Zacks Consensus Estimate.
Healthy growth in the company’s multi-location and national businesses was a tailwind.
Advertising revenues (96% of total revenues) rose 6% year over year to $227 million, driven by growth in the number of Paying advertising accounts.
Paying advertiser accounts were 192,000, up 8% year over year, aided by a transition to non-term advertising.
In the first quarter, Paying advertising locations grew 4% year over year to 529,000 sites but decreased by 15,000 locations sequentially.
Yelp is more and more benefiting from its Home & Local services, which contributed 33% to advertising revenues. Home & Local category was mainly boosted by revenues from ‘Request-A-Quote’, which surged 50% year over year.
Management noted that the launch of Verified License last November led to a rapid adoption with more than 5,000 clients adding the feature to their advertising packages. Moreover, a positive early response to the latest offering, Business Highlights, unveiled at April end, is a tailwind.
Transaction revenues declined 25% year over year to $3 million on revenue loss as a result of Eat24’s sale to Grubhub.
Other services revenues improved 8% to $5 million, banking on growth of Yelp Reservations and Yelp Waitlist.
In the first quarter, cumulative reviews rose 18.7% year over year to more than 184 million. App unique devices climbed 16% year over year to 35 million on monthly average basis.
In the first quarter, the company delivered 19% more ad clicks to advertisers while reducing their average cost-per-click (CPC) by 8%.
Yelp reported adjusted EBITDA of $39 million, up 19% year over year. Adjusted EBITDA margin expanded 200 bps to 17%.
Balance Sheet & Cash Flow
Yelp exited the first quarter with $626 million in cash, cash equivalents & marketable securities, down from $755.9 million at the end of the prior reported quarter.
Net cash flow from operating activities in the first quarter of 2019 was $41 million.
During the first quarter, the company repurchased nearly 2.8 million shares for $102 million. As a result, the company lowered its outstanding shares by 3.5% from the beginning of this year.
For the second quarter, Yelp expects a revenue rise in the range of 4-6% and adjusted EBITDA margins to be flat or increase 1 percentage point year over year.
The company still expects to achieve 8-10% revenue growth for 2019. Transaction revenues are expected to be nearly $15 million and Other services revenues might be around $29 million.
Adjusted EBITDA margin is anticipated to improve 2 to 3 percentage points for the full year.
Revenues are likely to rise in the mid-teens’ rate on average during the 2019-2023 period.
Yelp also reiterates its adjusted EBITDA margin growth expectation of 30-35% by 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.12% due to these changes.
At this time, Yelp has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Yelp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.