What To Watch For In Yelp’s Q3 Earnings

by Trefis Team
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Yelp (NYSE:YELP) is scheduled to report its Q3 numbers after market close on Thursday, November 8. The highlight of Q2 was the company’s decision to transition to non-term advertising from its historical practice of selling ads on term contracts. Not only did this lead to the fastest growth in paying advertising accounts in nearly two years, but the company also ended up adding 31,000 accounts in the first half of 2018 (compared to ~31,000 in the preceding five quarters together). Since the transition was completed in May 18, Q3 could continue to benefit from a larger timeframe sequentially, and also from the base effect for a y-o-y comparison.

We currently have a price estimate of $54 per share for Yelp, which is around 20% higher than the current market price. Our interactive dashboard on Yelp’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

The impressive advertising revenue growth of 21% was predicated on the momentum with which new clients were acquired. Management stated that in Q2, Local sales teams acquired three times as many new advertisers as they did in the prior year period. Evidently, non-term contracts seem to have opened the floodgates in terms of advertising deals.

These strong volumes have also translated into higher cash flows, since non-term contracts appear to have similar margins to those of term deals. Additionally, the increased trial purchase activity is expanding the top of the funnel for Yelp, which ultimately helps in greater and faster acquisition of merchants.

For the company’s Q3, in addition to merchant volume growth momentum, we will also be looking for additional color on pricing strength and management’s thoughts on balancing the supply (end user) side of the equation with the growing demand from advertisers.

Do not agree with our forecast? Create your own price forecast for the Yelp by changing the base inputs (blue dots) on our interactive dashboard.

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