Can Growth In Demand Help Yelp Tide Over Supply-Side Issues?

by Trefis Team
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Yelp (NYSE:YELP) reported its fourth quarter and full year earnings on Wednesday, February 13. The company’s revenue and EPS beat market expectations. While end-user demand continues to be strong, the company’s management continues to be cautious on its sales transition in its local advertising business.

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, and see all of our Technology company data here.

Q4 earnings takeaways are below:

  • Paying advertiser accounts grew to 191,000 (+17% y-o-y).
  • App unique devices increased to 33 million (+14% y-o-y), with cumulative reviews also registering strong growth to reach 177 million (+20% y-o-y).
  • Advertising revenue increased to $235 million (+12% y-o-y) driven by a 17% y-o-y increase in paying advertiser accounts. Management noted that Yelp had “significantly decreased friction” in the advertiser acquisition process.
  • Other revenues declined to $9 million (-12% y-o-y) on account of the divestment of Eat24 to GrubHub and business restructuring.

The company expects its 5-year revenue CAGR to be in the mid-teens, while the guidance for 2019 revenue growth has been pegged at 8-10%. Furthermore, the revenue growth guided for Q1 is even lower at 4-6%. Evidently, management expects the transition in local advertising to selling non-term contracts to take at least 12 months to stabilize. The first sequential decline in paying advertisers over the last three years lends credibility to management concerns.

On the brighter note, Yelp expects its partnership with GrubHub to help drive volumes going forward while helping to control costs. Given that Yelp continues to grow the demand side of its marketplace, volume growth with GrubHub is likely to translate into better margins.

Overall, after the surprise in Q3, Yelp’s management appears to be treading cautiously. While we expect the company’s operating leverage to surprise on the cash flows, we will be looking out for more consistent execution from the company.

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