Yelp Earnings Preview: Revenue Set To Grow In Q1, Albeit At A Slower Pace

Yelp (NYSE:YELP) is set to report its Q1 results on May 9th. ^[1] The company’s revenue has seen improvement on the back of improved monetization rates in its local ads business. Furthermore, the user base for its mobile app continues to grow, which likely helped the company’s revenues in Q1. Additionally, we expect that revenues for its deals and partnership business will improve due to a growing number of transactions on Yelp’s platform. In this earnings announcement, we will continue to monitor the monetization rate of its markets in the U.S. and the growth in its transaction revenues.

Check out our complete analysis of Yelp

Outlook for Q1 and 2017

For the first quarter of 2017, Yelp’s net revenue is expected to be in the range of $195 million to $199 million, representing growth of approximately 25% compared to the first quarter of 2016 at the midpoint of the guided range. Adjusted EBITDA is expected to be in the range of $25 million to $28 million.

For the full year of 2017, net revenue is expected to be in the range of $880 million to $900 million, representing growth of approximately 25% compared to the full year 2016. Adjusted EBITDA is expected to be in the range of $150 million to $165 million.

Strength In Domestic Markets To Boost Revenues

The local ads business currently accounts for around 75% of Yelp’s stock value, according to our estimates, and it is the company’s biggest revenue source. During 2016, active advertising local business accounts grew by 24% year over year to approximately 137,800, slower than expected. However, the number of claimed businesses, which have a listing with Yelp but do not pay for any premium services, stands at over 3.36 million, growth of over 27%. The majority of these businesses are in regions where Yelp has been operating for more than a decade. 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 for the full year.

DPO Services Revenues Set To Grow In The First Quarter

Yelp generates revenue from Deals, Partnerships, and Other Services through transactions that occur on its website. 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 has stated that growing transaction activity remains a top strategic objective for 2017. Since the start of 2017, Yelp extended Request-A-Quote service to its users, thus connecting millions of users with merchants and service providers.

Trefis’s price estimate for Yelp stands at $33, which is slightly below the current market price.

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1. Yelp Investor Relations [↩]