Earnings preview: Yelp to gain from advertising in Q1

Online review company Yelp (YELP) is scheduled to report its earnings report for the first quarter of 2019 on Thursday after the market closes. The results will depend on the more flexible advertising terms to strengthen its revenue source. The advertising revenue and services revenue could be driving the top line growth.

Advertising, which constitutes the major chunk of revenues, has performed consistently in the recent past by showing double-digit growth. However, the weakness in average revenue per advertiser remained a major concern for the company. This could drag the growth in advertising segment down.

The company has helped about 5 million business owners to promote and drive traffic to their businesses by claiming their presence through Yelp. During the fourth quarter, the company has helped more than 540,000 paying advertising locations on a monthly average basis to get leads. Also, the Yelp platform has received more than 175 million cumulative reviews of businesses from the consumers during the fourth quarter.

Yelp remained focused on delivering renewed double-digit revenue growth starting in 2020. The company planned driving margin expansion and optimize its cost structure and continue establishing effective partnerships to help accelerate its strategy. Yelp intended to continue to return capital to its shareholders by repurchasing stock with the board having just doubled its authorization.

For 2019, the company had expected revenue growth to be slower than last year. Yelp believed this is the right thing to do for long-term shareholder value and has confidence in its ability to return to strong double-digit revenue growth in succeeding years. The company predicted this year as a transition one as it continues to reposition its business and strategy with the goal of creating a more valuable company.

Analysts expect the company to post earnings of $0.01 per share on revenue of $235.34 million for the first quarter. In comparison, during the previous year quarter, Yelp reported a loss of $0.03 per share on revenue of $223.07 million.

The company has surprised investors by beating analysts’ expectations in the past four quarters. Traders believed the company to report upbeat results for the first quarter. Majority of the analysts recommended a “hold” rating on the stock with an average price target of $39.57.

Also read: SurveyMonkey Q1 earnings preview

For the fourth quarter, Yelp reported a 77% dip in earnings due to higher costs and expenses. Revenue improved by 11% helped by a solid performance from the home and local services and restaurant verticals. Reviews posted on the site improved 20% over the prior year. On the traffic front, the number of unique devices using the app grew over last year. The number of paying advertising accounts improved 17% over last year.

The company had expected revenue to increase by 4% to 6% for the first quarter of 2019 and 8% to 10% for the full year 2019. Adjusted EBITDA margins were expected to improve 1 to 2 percentage points in the first quarter and 2 to 3 percentage points for 2019.

Shares of Yelp opened lower on Wednesday but changed course to the green territory. The stock has fallen over 14% in the past year while it has risen over 11% in the past three months.

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