Take the Hint and Buy Yelp Inc Stock Already!

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YELP stock - Take the Hint and Buy Yelp Inc Stock Already!

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For a brief time after Wednesday’s post-close earnings report from Yelp Inc (NYSE:YELP), Yelp stock owners had good reason to be worried. The knee-jerk reaction to the news was a 9% plunge.

It was a short-lived setback though, mostly driven by a disappointing fourth-quarter outlook … Yelp dialed back its top-line estimate for Q4 by about 8% less than analysts were expecting.

It wasn’t a selling effort that took hold though. By the time Thursday’s opening bell rang, the loss was pared back to less than 1%, as investors realized the company’s likely fourth quarter top line would still be roughly 9% better than sales from Q4 of 2016.

Better yet, Yelp posted its second huge profit surprise for the year last quarter.

Yelp Earnings Recap

For its third quarter ending in September, online business-review repository Yelp turned $222.4 million worth of sales into earnings of nine cents per share, or non-GAAP income 29 cents per share of Yelp.

Analysts were collectively expecting the company to report a loss of two cents per share on revenue of $220.8 million. Yelp Inc. posted a profit of two cents per share of YELP stock in the comparable quarter of 2016, when it generated $186.2 million in sales.

CEO Jeremy Stoppelman commented “We executed well in the third quarter, growing revenue by 19% and generating positive net income. Traffic growth continues to be healthy, with app unique devices growing 21% year-over-year, and our retention efforts have contributed to strong double-digit advertiser account growth.”

In Flux

Yelp has been a difficult name to handicap largely because it’s been reconfiguring lately. Case in point: It recently got out of the food-ordering business, selling its Eat24 platform to rival GrubHub Inc (NYSE:GRUB) … a wise decision in light of the fact that Amazon.com, Inc. (NASDAQ:AMZN) is at the precipice of tiptoeing into that turf.

Yelp is still partnering with GrubHub in terms of online food-ordering, though.

At the same time, Yelp is wading deeper into an effort to better monetize its localization features. That is to say, the natural, geographic stratifications that inevitably pop up when given enough time have become a full-blown product in and of themselves.

More and more businesses are signing up for paid exposure at the Yelp site, to better manage the message that was being conveyed by reviewers anyway. All told, the number of paying advertising accounts reached 155,000, up 18% year-over-year.

Yelp has also turned up the heat on its Request-a-Quote service that connects consumers with service providers — a revenue bearing platform that capitalizes on knowing where consumers are located, and knowing which businesses are nearby.

Goldman Sachs believes the Request-a-Quote service could facilitate 14 million business price quotes this year, and eventually mean $350 million in annual revenue. This so-called transactional revenue rolled in at $18.5 million for the quarter, 16% better than the third quarter of 2016.

Advertising revenue totaled $199.6 million, up 18% year-over-year.

Looking Ahead for YELP Stock

Prior to Wednesday’s announcement, experts were calling for a fourth-quarter profit of five cents per share, down from the 10 cent profit the company reported in Q4 of 2016, and $233.6 million in sales.

For all of 2017, those same analysts were modeling earnings of seven cents per share of Yelp stock versus a loss of six cents per share in 2016; the bulk of that improvement was driven by a surprisingly strong profit in the second quarter. Revenue was expected to rise 21% to $860.7 million. The company, however, updated its Q4 guidance, now calling for revenue of between $211 million and $216 million.

On a full-year basis, that means a top line of between $839 million and $844 million, down from prior guidance of $855 million to $865 million. For 2018, analysts had estimated earnings of 26 cents per share on revenue of $882.2 million.

Those analyst outlooks are apt to change with the company’s third-quarter numbers — and a fresh outlook — in hand.

Despite the foreseen growth and sizable swing to a profit, the pros remain unimpressed. The consensus YELP stock price target now stands at $41.37, down 11% from the stock’s current price.

And for the record, Yelp shares almost got there in Wednesday’s after-hours trading, as the immediate response to the fourth quarter outlook was a wildly bearish one. With a night to sleep on it though, those traders mostly changed their mind.

That resiliency from YELP shares along with the steady revenue growth and profit surprise suggests traders believe the company’s fourth-quarter outlook is a low-ball estimate, and those traders may well be right.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/yelp-stock-earnings-recovery/.

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