Yelp Inc. (NYSE: YELP) announced better-than-expected second-quarter 2018 results on Wednesday after the market closed, detailing accelerated advertising revenue growth and record paying advertising account additions following the rollout of the company’s more flexible non-term ad contracts.
With shares up nearly 15% in after-hours trading as the market reviews the news, let’s take a closer look at how the local business review specialist ended the first half.
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Yelp results: The raw numbers
| Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$234.9 million |
$209.9 million |
11.9% |
|
GAAP net income attributable to common stockholders |
$10.7 million |
$7.9 million |
35.4% |
|
GAAP earnings per diluted share |
$0.12 |
$0.09 |
33.3% |
What happened with Yelp this quarter?
- Revenue was above Yelp’s guidance provided in May, which called for a range of $230 million to $233 million.
- Adjusted EBITDA increased 9% to $47 million, above guidance for a range of $39 million to $42 million.
- Yelp’s bottom line also handily exceeded consensus estimates for earnings of $0.01 per share.
- By segment: Advertising revenue grew 21% year over year to $226 million, led by growth in the size of Yelp’s local salesforce and business owners’ positive response to Yelp’s new non-term advertising products. Transactions revenue declined to $4 million from $18 million a year ago, driven again by last year’s sale of Eat24 to GrubHub. Yelp is now paid a fee under a new partnership with GrubHub for food orders originating on its platform. Other services revenue increased by $1 million to $5 million, driven by efficiencies from combining Yelp Reservations and Yelp Nowait sales teams, as well as growth from the Yelp WiFi marketing platform.
- Advertising revenue grew 21% year over year to $226 million, led by growth in the size of Yelp’s local salesforce and business owners’ positive response to Yelp’s new non-term advertising products.
- Transactions revenue declined to $4 million from $18 million a year ago, driven again by last year’s sale of Eat24 to GrubHub. Yelp is now paid a fee under a new partnership with GrubHub for food orders originating on its platform.
- Other services revenue increased by $1 million to $5 million, driven by efficiencies from combining Yelp Reservations and Yelp Nowait sales teams, as well as growth from the Yelp WiFi marketing platform.
- Cumulative reviews increased 21% year over year to 163 million.
- App unique devices grew 15% to 32 million.
- Paying advertising accounts soared 31% year over year to 194,000, marking a record sequential increase of 17,000 customers from last quarter. Again, growth here was driven by the completion of Yelp’s transition to non-term contracts.
What management had to say
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Yelp co-founder and CEO Jeremy Stoppelman stated:
In his latest quarterly letter to shareholders, Stoppelman elaborated on the strategic contract changes that left the market worried over whether last quarter’s strength was sustainable:
Looking forward
For the third quarter, Yelp expects revenue ranging from $242 million to $246 million, with adjusted EBITDA of $49 million to $52 million. As such, Yelp increased its its full-year guidance to call for revenue of $952 million to $967 million, compared with $943 million to $967 million before, with adjusted EBITDA of $186 million to $192 million, up from $179 million to $188 million previously.
In short, this was a solid beat-and-raise performance from Yelp that should effectively silence skepticism over whether its transition to non-term advertising contracts was ill-advised. And the stock is rightly soaring as investors respond in kind.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.
