Yelp Gets a 5-Star Review for Its Latest Quarter

by Tom Taulli | February 6, 2014 3:03 pm

As seen with its latest earnings report, Yelp (YELP[1]) is having no problems in cranking up the growth. Wall Street is certainly happy about the news, sending YELP stock is up nearly 20% to all-time highs in today’s trading.

Here’s the rundown: Revenues surged by 72% to $70.7 million, and the net loss came to 3 cents per share — down from an 8 cents per share loss in the same period a year ago. Wall Street was forecasting revenues $67.3 million and a net loss of 2 cents per share.

And going forward, it looks like there is no stopping the strong momentum.

For the current quarter, Yelp expects revenues to range from $73.5 million to $74.5 million — above the analysts’ consensus of $73.25 million. As for the full-year, the company forecasts revenues of $353 million to $358 million. Again, the number was above the consensus, which was $347.85 million.

A key to the success has been Yelp’s focus on mobile. For example, the company recently launched apps that allow for the posting of reviews, which has led to a boost in engagement. In Q4, about 1 million reviews (30% of total reviews) were made on mobile devices.

But YELP stock also got a boost from the company’s aggressive investments in foreign markets, especially in Europe. It looks like the acquisition of Qype is getting lots of traction. Consider that about 21% of Yelp’s overall traffic is from outside the U.S. That’s a great way for YELP stock to drive growth.

Oh, and Yelp has also been working hard on “closing the loop with business owners.” In other words, the company has been adding analytics to boost the performance of ad campaigns. To do this, Yelp created the Revenue Estimator, which provides a way to measure the return-on-investment for leads.

For the most part, Yelp’s strategy is spot-on. And of course, the mobile megatrend is flying with a strong tailwind, which is likely to continue for some time. The company has also been able to beat back the competition, such as Google (GOOG[2]).

No doubt, Yelp is becoming a powerful brand. In Q4, the company’s monthly active users (MAUs) increased 39% on a year-over-year (YOY) basis, up to 120 million.

Despite all this, investors should still be cautious. The fact is that YELP stock is trading at a lofty valuation, with a forward price-to-earnings ratio of 159X. In comparison, Facebook’s (FB[3]) is a mere 37X and Groupon’s (GRPN[4]) is about 41X.

In other words, much of the good news is already priced into YELP stock. And even a slight miss, could make YELP stock vulnerable to a serious fallback.

Tom Taulli runs the InvestorPlace blog IPO Playbook[5]. He is also the author of High-Profit IPO Strategies[6]All About Commodities[7] and All About Short Selling[8]. Follow him on Twitter at @ttaulli[9]. As of this writing, he did not hold a position in any of the aforementioned securities.

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