When the local ratings and review company, Yelp Inc. (YELP, Financial), posted its earnings last week on October 22, it did add a smile to the investors’ faces and did beat the analysts’ estimates. The quarter was a solid one in terms of both the top and bottom lines, and the management seems to be optimistic and has improved its guidance for the fourth quarter of the fiscal year. However, the forecast failed to match the expectations of the market, and this did send the stock spiralling downwards soon after the results were out. So what is the appealing part in the third quarter earnings of Yelp? Does it give an idea of the future growth of the company? Let’s dig deeper to get to the answers.
Quarterly numbers were impressive
The company that connects consumers with great local businesses saw its net revenue grow by a whopping 67% to $102.5 million, compared to a year-ago period. Revenue for the period surpassed the average estimate from analysts, who anticipated net revenue to be around $99 million. Remarkable was the net income which moved to the positive territory standing at $3.6 million, from a net loss of $2.3 million reported in the similar period of last year.
This translated to earnings of $0.05 per share, from a negative $0.04 per share in the third quarter of the 2013 fiscal year. In fact, the earnings exceeded the consensus estimate of analysts’ expecting it to come in at $0.02 a share.
The rise in revenue could be attributed to factors such as international expansion, increase in number of businesses available for consumers on the Yelp platform and the improvement in community engagement.
While active local business accounts increased 55% from last year’s third quarter to 86,200, the top management emphasised that the company was still in its early days in terms of garnering paid accounts. The company’s CFO commented during the earnings call, “We continue still very much to be in an acquisition phase, [Our numbers] are still a drop in the ocean in terms of the millions of businesses that are out there.” The management reiterated that Yelp had to grow larger in the upcoming quarters to manage the outgrowing competition from rivals such as Facebook (FB, Financial) and Twitter (TWTR, Financial).
“Yelp is now a marketplace where consumers can come and also transact, and it’s a great way to make the user experience better,” said CEO Jeremy Stoppelman. “It’s feedback to local businesses so that they can see that transactions are actually happening … with that cold hard cash that’s actually going to their bank account.”
Management upbeat on next quarter estimates
While CEO Jeremy Stoppelman and CFO Rob Krolik focused on international expansion and growth in the local business accounts during this earnings conference, investors reacted to the raised sales guidance for the coming quarter from the management’s end as it missed meeting the speculative analysts’ consensus. The company now projects sales of the fourth quarter to come in the range of $107 million and $108 million. This falls below the expectations of analysts’ who have polled and arrived at a consensus of $111 million for the next quarter.
Yelp also expects the revenue for the entire fiscal year to fall between $375 million and $376 million, from the previous range of $372 million and $375 million, representing growth of approximately 61% compared to last fiscal year’s reported full-year revenue.
Final note
Yelp is surely on a growth trajectory which is expected to see newer peaks in the coming future. So investors’ need to stay tuned to the company performance in the next quarter as it should be much better than what Yelp performed in this quarter.
