At the beginning of the year 2016, Yelp’s stock (NYSE: YELP) plunged by about 50% after a disastrous quarter, but things are looking up for the local reviews site. It swung to a profit after five consecutive quarters of losses.
Yelp’s second quarter revenue was $173.4 million, up 30% over the year, beating analyst estimates of $169.8 million. Net income was $0.4 million, or $0.01 per share surpassing analyst expectations of a loss of $0.07 per share.
By segment, Local advertising revenue grew 41% to $151.9 million driven by strength across the local, national and self-serve channels and improved revenue retention. Transactions revenue grew 37% to $15.5 million and other revenue declined 6% to $6 million.
For the third quarter of 2016, net revenue is expected to be in the range of $180 million to $184 million, representing growth of about 27% y-o-y. Adjusted EBITDA is expected to be in the range of $24 million to $28 million. Analysts expect revenue of $179.6 million.
For the full year of 2016, net revenue is expected to be in the range of $700 million to $708 million, representing growth of about 28% y-o-y. Adjusted EBITDA is expected to be in the range of $100 million to $108 million. Analysts expect full year revenue of $699.8 million.
The company also announced that CRO Jed Nachman, who joined Yelp in 2007, has been appointed as its COO. Geoff Donaker will be retiring from the COO position after 11 years with Yelp and will continue as a strategic advisor to the company and retain his seat on Yelp’s board of directors.
Increasing Local Advertising Revenue but Declining Traffic
Yelp has phased out its brand advertising solutions and focused on its local advertising solutions, which now account for 87% of its revenue. It now has 128,000 local advertising accounts, up 32% over the year. Cumulative reviews grew 30% to 108 million. App Unique Devices grew 27% to 23 million on a monthly average basis.
During the quarter, Yelp added five new platform partners to extend its transaction capabilities wherein consumers can transact with over 100,000 local businesses on the Yelp Platform. As a result, total transaction volume through Eat24, Yelp Reservations and Yelp Platform grew 49%.
However, the number of people visiting the site over desktop computers has been declining and mobile traffic is slowing. Average monthly unique visitors from mobile rose just 7%, its slowest ever. Unique mobile users per month grew 27% (vs. 32% in 1Q16, 38% in 4Q15, and 51% in 2Q15), and mobile unique visitors grew 12% (vs. 14% in 1Q, 19% in 4Q and 22% in 2Q). This slowdown in traffic could be a result of increasing competition from the likes of Google and Facebook.
Based on the recent performance, several analysts have increased the price target, and its price target now ranges from $25 to $45. However, analysts are divided on recommendations. Bulls say its valuation is cheap while bears are concerned about slowdown in metrics. Analysts at Raymond James, Axiom Capital, and Mizuho Securities USA raised their recommendations to buy from neutral. Analysts at Susquehanna Financial reiterated a Neutral rating and UBS reiterated a Sell rating.
Yelp has also partnered with and made a small, strategic investment of $8 million in Nowait, a mobile platform that allows restaurants to manage their waitlists. After the integration of Nowait onto Yelp Platform, consumers will be able to view wait times at thousands of restaurants and even add themselves to the waitlists remotely via the Yelp app.
In December 2015, Yelp announced that it has ended its partnership with restaurant reservation service OpenTable, which since 2010 allowed users to make OpenTable reservations through Yelp. Analysts say the move underscores the growing rivalry between the two. OpenTable, which was acquired by Priceline in 2014 for $2.6 billion, has expanded its reviews. In 2013, Yelp acquired rival reservation firm SeatMe and launched Yelp Reservations for free. Yelp Reservations now serves 18,000 restaurants while OpenTable, which has a partnership with Facebook, is used by over 30,000 restaurants. The best outcome for Yelp would be if it were to be acquired by Priceline and combined with OpenTable. However…
Following the results, its stock hit a 52-week high of $37.57 and is currently trading at $37.07 with a market cap of $2.83 billion. It hit a 52-week low of $14.53 in February.
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