Yelp (NYSE: YELP), an online site for discovering local businesses ranging from bars, restaurants, and cafes, to hairdressers, spas, and gas stations, is scheduled to report its fiscal third-quarter results on Thursday, November 2. We expect the stock to trade higher post the fiscal Q3 release with revenues coming in line and earnings beating earnings. YELP stock has increased from around $27 to $41 YTD, compared to a 7% rise in the S&P index. The stock rise during this period can be attributed to better-than-expected fiscal first-half results in 2023. We continue to believe that the company stands to benefit from its shift from local businesses and restaurants to multi-location advertiser strength and an uptrend in cost-per-click (CPC) rates. Yelp has guided 2023 full-year revenue to be in the range of $1.32 billion to $1.33 billion, reflecting a $20 million increase at the midpoint compared to its previous outlook. In addition, it also expects adjusted EBITDA in the range of $310 million to $320 million, an increase of $15 million at the midpoint compared to its previous outlook.
YELP stock has witnessed gains of 15% from levels of $35 in early January 2021 to around current levels, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. However, the increase in YELP stock has been far from consistent. Returns for the stock were 11% in 2021, -25% in 2022, and 50% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 7% in 2023 (YTD) – indicating that YELP underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could YELP face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?
Our forecast indicates that Yelp’s valuation is around $44 a share, which is about 7% higher than the current market price. Look at our interactive dashboard analysis on Yelp’s Earnings Preview: What To Expect in Fiscal Q3? for more details.
(1) Revenues expected to come in line with consensus estimates
Trefis estimates Yelp’s Q3 2023 revenues to be around $342 Mil, in line with the consensus estimate. In Q2, Yelp generated net revenue of $337 million, up 13% year over year (y-o-y), driven by an increase in average revenue per location. The company’s ad clicks were flat y-o-y but its ad monetization saw improvement – meaning it made more per click. Its average cost per click was up 14% y-o-y. Yelp has significant exposure to the restaurant industry, which explains a 14% growth in its second-quarter advertising revenue despite inflationary pressures throughout the period. We forecast Yelp’s Revenues to be $1.3 billion for the fiscal year 2023, up 12% y-o-y.
2) EPS likely to beat consensus estimates
Yelp’s Q3 2023 earnings per share (EPS) is expected to come in at 37 cents per Trefis analysis, beating the consensus estimate. The company’s EPS grew to 21 cents in Q2 2023 from 11 cents in Q2 2022. Its adjusted EBITDA also increased by 25% y-o-y to a record $84 million.
(3) Stock price estimate appears higher than the current market price
Going by our Yelp’s Valuation, we estimate earnings per share to come at 98 cents and a P/E multiple of 45.1x in fiscal 2023, translating into a price of around $44, which is almost 7% higher than the current market price.
It is helpful to see how its peers stack up. YELP Peers shows how Yelp compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||-4%||7%||84%|
|Trefis Reinforced Value Portfolio||-6%||16%||496%|
 Month-to-date and year-to-date as of 10/30/2023
 Cumulative total returns since the end of 2016