by Tom Taulli | July 29, 2013 2:34 pm
2013 has been a tremendous year for local-business review site Yelp (YELP), which has recorded a doubler and then some for the year-to-date.
But have investors been a little too trigger-happy with the “buy” button? Well, we might find out Wednesday when the company reports second-quarter earnings after the close.
The consensus estimate for Yelp revenues is $53.29 million, a significant leap from last year’s $32.65 million, but analysts still expect the company to report a loss of 4 cents per share.
Yelp plays in the fast-growing category for reviews of restaurants, local shops, hotels, spas and other businesses — which pits it against smaller sites like CitySearch and MerchantCircle, as well as larger competitors such as Google (GOOG) and its Places for Business and Yahoo’s (YHOO) Local Listings.
Still, Yelp has become a dominant brand. Last quarter, cumulative reviews jumped by 42% to 39.1 million and unique visitors climbed by 43% to 102.1 million. More importantly, the company has been able to monetize its traffic; its number of paying businesses spiked by 63% to 44,700. Consider that the number of paying businesses spiked by 63% to nearly 45,000 in the first quarter.
Investors will be looking at two key things for Q2. One is mobile — Yelp has been an early player in the fast-growing market, and its core app is on about 10 million devices, accounting for about 45% of all searches. The company has also been successful snagging top-notch advertisers like Yum Brands’ (YUM) Taco Bell, InterContinental Hotels (IHG) and MillerCoors. As seen with Facebook’s (FB) blowout second quarter, the mobile ad business can be quite lucrative and a big driver for growth.
But investors will also want to get an update on the progress of Yelp’s international expansion. YELP has heavily invested in Europe and Australia, including the purchase of Qype, a top operator in Germany and the U.K.
However, the biggest thing that could weigh on Yelp is its bloated valuation. You usually don’t double in a year without trading at a high multiple, and YELP is no exception, trading at 225 times next year’s expected earnings — compare that to 37X for Facebook, 31X for Groupon (GRPN) and 73X for Angie’s List (ANGI).
The chances of Yelp plunging on even a slight miss are considerable; investors not already in YELP should consider standing on the sidelines, while current shareholders should implement stop-losses to protect their profits.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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