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

Yelp (NYSE:YELP) is set to report its Q2 results on August 3rd. 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 and reviews in Q2. However, the company is struggling to retain its paying customers, and as a result the revenue guidance for 2017 was lowered. In this earnings announcement, we will continue to monitor the monetization rate of its markets in the U.S. Additionally, we expect that revenues for its deals and partnership business will improve due to a growing number of transactions on Yelp’s platform.

Check out our complete analysis of Yelp

Outlook for Q2 and 2017

For the second quarter of 2017, net revenue is expected to be in the range of $202 million to $206 million, representing at the midpoint of the range growth of approximately 17.6% compared to the second quarter of 2016. Adjusted EBITDA is expected to be in the range of $32 million to $35 million.

For the full year 2017, the company has reduced its net revenue guidance from $880- $900 million to $850-$865 million, representing growth at the midpoint of the range of approximately 20% compared to full year 2016. Adjusted EBITDA guidance has also been revised downward to $130-$145 million.

Strength In Domestic Markets To Boost Revenues, Albeit At A Slower Rate

The local ads business currently accounts for around 72% of Yelp’s stock value, according to our estimates, and it is the company’s biggest revenue source. Yelp is witnessing strong growth from mobile users who are using its app to access local businesses. However, the company is unable to retain its paying customers. This has led to slower growth in revenues despite growth across all three primary channels: local, national, and self-serve. Nevertheless, the number of claimed businesses, which have a listing with Yelp but do not pay for any premium services, stands at over 3.56 million. 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 to active businesses, we expect strong growth in active business accounts from these regions. Additionally, the company could witness double-digit growth in revenue per customer. Therefore, we expect the 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.

DPO Services Revenues Set To Grow In The Second 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. This has led to an increase in transactions and reservations across Yelp’s platform in Q1. We expect that this trend continued in Q2, and transactions and reservations across both Eat24 and the Yelp Platform likely grew in double digits during the quarter.

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