Most tech companies haven’t had a great start to the year. Amazon (AMZN, Financial) missed big, LinkedIn (LNKD, Financial) has had $7 billion wiped off its market value and Twitter (TWTR, Financial) is locked in a proverbial freefall. Yelp (YELP, Financial) hasn’t fared a whole lot better.
Shares tanked by over 11% on Tuesday after the company’s Q4 results leaked ahead of schedule – revealing a sizeable net loss, faltering brand advertising business and the impending resignation of the company's CFO. Yet even before Yelp posted its annual results, analysts were starting to get impatient with the site.
The board’s reactionary take on competing brands has hit share prices particularly hard in recent months. Ever since Facebook (FB, Financial) decided to launch its own highly-anticipated reviews service in December, Yelp’s perceived value has begun to shrink. In the run up to Tuesday’s earnings report, shares had already hit a 52-week low, dropping 36% since August and flirting dangerously close to their IPO value.
A drop like that doesn’t leave much room for confidence. Bearing in mind the nature of Yelp’s core business and its plans for the future, however, things are actually going a lot better than analysts seem to think.
Yelp suffered a net loss of $22.2 million for the last quarter of 2015, or around 29 cents per share. It’s worth noting that net loss included an income tax expense of $20.3 million due to the recording of a valuation allowance against the site’s deferred tax assets. Non-GAAP net income hit $9 million in Q4, compared to $14.5 million last year. Across the whole of 2015, Yelp suffered a net loss of $32.9 million – equating to 44 cents per share. Non-GAAP net income for the full year finished at $28.9 million, compared to $36.3 million in 2014.
That being said, this week's earnings report wasn’t all doom and gloom. Net revenue for FY2015 actually shot up by an impressive 46%, to $549.7 million. Adjusted EBITDA for the full year 2015 was relatively stable at $69.1 million, and net revenue for Q4 rose 40% year-over-year to $153.7 million. At the end of the day Yelp is making plenty of money – the company just hasn’t been using it all wisely. With any luck, that’s about to change.
One of the biggest drains on Yelp’s pocketbook has been its brand advertising business. In Q4, revenue in this department plummeted by a whopping 18%, to just $7.1 million. Fortunately, brand advertising has already been phased out of the company’s product portfolio for 2016 – so this should be the last quarter we have to hear about how awful it’s doing. Meanwhile, a whole host of Yelp’s other business activities are showing a lot of promise.
Local advertising revenue has shot up 35% year-over-year, finishing at $125.9 million last quarter. That spike in revenue can be largely attributed to a steadily growing account base. The number of local advertising accounts on Yelp has increased by 32% year-over-year, coming in at some 111,000. As of the fourth quarter of 2015, 61% of local advertising revenue now comes specifically from CPC advertisers, compared to just 32% in 2014.
We’ve also gotten good news from some of Yelp’s bigger acquisitions. Online food ordering service Eat24, which Yelp acquired in 2015, saw an 80% hike in revenue last quarter. Likewise, reservation app SeatMe witnessed an impressive 120% increase in user activity year-over-year. Transactions on these apps raked in revenues of $14 million across the quarter, compared to just $1.4 million in the final quarter of 2014. As Yelp’s app userbase continues to swell, there’s going to be a whole lot of room for growth here.
As a result, it probably goes without saying that it will be local advertising and an ever-increasing stable of popular apps that will guide Yelp’s evolving growth strategy in 2016.
For the first quarter of the year, net revenue is expected to hit somewhere between $154 million and $157 million, representing growth of about 31% year-over-year. Adjusted EBITDA is expected to come in at least $10 million, with depreciation and amortization anticipated at approximately 5% of revenue. Across the whole of FY2016, Yelp is forecasting a net revenue of $685 million to $700 million – equating to growth of around 26%.
Bearing in mind that Yelp is facing some of the stiffest competition on the web, that’s a pretty respectable outlook. It’s definitely no Facebook, but no one can deny that Yelp is currently providing fairly good value for money. Consequently, investors shouldn’t start writing angry reviews just yet. The future is definitely looking bright at Yelp – so long as the company can deliver on its 2016 forecasts.
