Yelp Earnings Preview: Revenues From Mobile And Local Ads To Report Growth

Yelp (NYSE:YELP) is set to report its Q4 results on February 9th. ^[1] While the company halted its international expansion efforts, its domestic business in the US has been faring well. However, user base growth for its mobile app continues and we believe that revenue for the company grew in Q4 and for the FY2016. In this earnings announcement, we will continue to monitor the adoption rate of its app and the monetization rate of its markets in the US.

Check out our complete analysis of Yelp

Outlook for 2016 and Q4

For Q4 FY16, the company guided revenues to be in $191 – $195 million range, representing growth of approximately 26% compared to the fourth quarter of 2015. Adjusted EBITDA is expected to be in the range of $36 million to $40 million. For the full year, Yelp has announced an improvement in guidance, and projects net revenue to be in $709 – $713 million range, while adjusted EBITDA should be in $111 – $115 million range.

Strength In Domestic Markets To Boost Revenues

The local ads business currently accounts for around 77.4% of Yelp’s stock value, according to our estimates, and it is its biggest revenue source. During Q3 2016, active advertising local business accounts grew by 29.6% year over year to approximately 135,000, slower than expected.

The number of claimed businesses, which have a listing with Yelp but do not pay for any premium services, stands at over 3.19 million. The majority of these businesses are in regions where Yelp has been operating for more than five years. Considering that mature markets witness higher conversion rates from claimed businesses to active businesses, we expect strong growth in active business accounts from these regions. Therefore, we expect average revenue per active business account, which is a function of the duration of Yelp’s services in a region, to grow during the quarter and in the year.

However, we believe that as the company is in the process of shutting its operations abroad, one-time costs will impact profitability and cash-flows in the quarter and the year.

Adoption In Mobile To Boost Revenue

Most of the users have a tendency to check up on local businesses, particularly restaurants, when they are on a move. As a result, Yelp’s mobile app has gained traction in the recent quarters. For example, in Q3 monthly unique visitors grew to 165 million. Furthermore, 51% of these unique visitors (~83 million monthly users) used mobile devices for accessing Yelp’s services. Considering the rampant growth in the usage of mobile devices, we expect the mobile platform to be the chief driver for revenue growth in Q4.

DPO Services Revenues Set To Grow In Q4

Yelp generates revenue from Deals, Partnership and Other Services (DPO) division through any transaction that might occur on its website. Furthermore, Yelp’s deals platform allows merchants to promote themselves, and offer discounted goods and services, on a real-time basis to consumers directly on Yelp’s website and mobile app. Yelp charges a fee on Yelp Deals for acting as an agent in these transactions. The Company continues to innovate with its offering and has recently introduced request-a-quote service to boost revenues for its listed businesses. Additionally, the company is expanding the distribution of its ad products and accelerating its push into the national channel by investing in products that unlock the power of Yelp data. During the first nine months, transaction revenue grew 53.5% year to year to $45.9 million, and remained strong across both Eat24 and the Yelp Platform. The number of transactions on Yelp Platform was particularly strong, more than doubling year to year. We believe that its services will drive revenues at DPO division in Q4.

Trefis’s price estimate for Yelp stands at $34.89, which is 4.3% below the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

See More at Trefis | View Interactive Institutional Research (Powered by Trefis) |Get Trefis Technology

1. Yelp Investor Relations [↩]