Yelp Down 20.5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Yelp (YELP - Free Report) . Shares have lost about 20.5% 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 Mixed Q3 Results

Yelp reported third-quarter earnings of 17 cents per share compared with 9 cents per share in the year-ago quarter.  

Net revenues increased 8.6% year over year to $241 million, which missed the Zacks Consensus Estimate of $246 million and also fell short of the guided range of $242-$246 million. Excluding revenues of Eat24, which the company sold to Grubhub in October 2017, revenues grew by 17% year over year.

Fewer new customer additions and slower-than-anticipated local Advertising revenue growth were dampeners. Transition to non-term advertising, which is expected to drive customer acquisition in the long run, is an overhang in the short run.

Management noted that the pace of new account growth slowed in the third quarter compared with what the company witnessed in the first half of 2018. Moreover, decline in salesforce productivity was a key headwind in the third quarter.

Given the unimpressive results, management lowered its outlook for fiscal 2018.

Top-Line Details

Advertising revenues (97% of total revenues) increased 16% year over year to $233 million. Paying advertiser accounts were 194K, up 25% year over year. On a sequential basis, it remained flat owing to the increase in cancellations. Slowdown in paying advertiser account adversely impacted the company’s results.

However, Yelp is increasingly benefiting from its Home and Local services, which came up with solid performance in the last reported quarter. Home & Local category was mainly driven by revenues from ‘Request-A-Quote’, which increased 27% sequentially.

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