I don’t say this often. In fact, I’ve probably never said it before. But Yelp Inc (YELP) deserves a round of applause.
That’s because the consumer reviews website reported an impressive quarter all-around after the bell on Thursday, beating expectations on revenue and earnings, while simultaneously lifting full-year 2016 guidance.
YELP stock is soaring in early morning trading after the news, with shares up 18%. As shareholders know, that’s a welcome reprieve from the recent price action (Yelp’s stock was down 46% in the last year and 25% year-to-date going into the report).
The Beginning of Profitability for YELP Stock?
Yelp’s first-quarter results obviously deserve to be applauded on account of the DBAR (double beat and raise) we saw late Thursday, but more optimistic investors also may justifiably wonder if the company is closing in on a major milestone: Permanent profitability.
That would be a major boon to its shares. Just look what happened to Amazon.com, Inc. (AMZN) when it started regularly pumping out profits quarter after quarter in 2015 (Amazon more than doubled that year).
This idea could very well be the unspoken reason YELP stock is soaring Friday.
But let’s not count our chickens just yet. In Q1, Yelp reported non-GAAP earnings per share of 8 cents per share, nearly triple the 3 cents per share Wall Street expected. However, using the stricter accounting rules of GAAP, Yelp lost 20 cents per share.
There were no caveats surrounding Yelp’s revenue beat: Revenue jumped 33.8% to clock in at $158.6 million, better than the $155.6 million analysts expected.
The fact that the company also boosted FY2016 revenue and EBITDA guidance is the final reason shareholders should be feeling good about YELP stock today. Yelp guided for revenue between $690 million and $702 million, up from the $685 million to $700 million range it gave a quarter ago.
2016 adjusted EBITDA, which the company expected to be between $90 million and $105 million three months ago, is now seen between $93 million and $105 million.
Where Yelp Goes From Here
We may very well start seeing positive sentiment come around to YELP stock, which hedge fund legend David Einhorn touted as a new position of his earlier this week. He thinks revenue could double at the consumer reviews company by 2019.
For revenue to double between 2016 and 2019, Yelp will have to grow revenue by a compounded annual growth rate of 26% per year. It’s doable, but it’s certainly above consensus, which thinks Yelp will only post revenue growth of 24.8% in 2017.
Given the general deceleration in revenue growth in recent years, I think doubling revenue from 2016 to 2019 will be tricky. But that’s no reason not to cheer yesterday’s results, which were indeed surprisingly good.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
