Yelp’s stock tanks despite beating Q1 estimates

Online review company Yelp (NYSE: YELP) topped analysts’ forecasts on revenue and earnings for the first quarter of 2019. The consensus estimate was for earnings of $0.01 per share on revenue of $235.3 million. Despite the win, shares plummeted 7% in aftermarket hours on Thursday.

Net revenue amounted to $236 million, up 6% from the same period last year, driven primarily by growth in advertising revenue. The results were at the high end of the company’s outlook range.

The company reported a net income of $1.3 million, or $0.02 per share, compared to a net loss of $2 million, or $0.03 per share, in the prior-year period.

Advertising revenue grew 6% year-over-year to $227 million, driven by an 8% increase in the number of Paying advertising accounts. Paying advertising locations grew 4% year-over-year to 529,000 locations.

During the quarter, Yelp delivered 19% more ad clicks to advertisers versus the year-ago period. Revenue from national and multi-location advertisers grew 22% year-over-year, driven by successful marketing of new advertising products.

During the quarter, Home & Local Services was the top advertising revenue category, growing nearly four times faster than all other categories combined. Revenue attributable to Request A Quote saw a growth of over 50% year-over-year. Yelp is on track to double the number of paid leads for its Home & Local advertisers by the end of this year.

Transactions revenue decreased to $3 million from $4 million last year. Other services revenue grew 8% to $6 million, mainly due to efficiencies gained from combining the Yelp Reservations and Waitlist sales and support teams and an increase in the number of restaurant customers using these products.

PRODUCT OFFERINGS

With regards to Yelp’s product offerings, since its November launch, Verified License has attracted over 5,000 business locations. The company has also launched two new offerings – Business Highlights and Limited Time Offers – which allow businesses to showcase their special attributes and offerings along with time-limited promotions in search results and Yelp pages. Yelp plans to launch additional products during the remainder of 2019.

OUTLOOK

For the second quarter of 2019, net revenue is expected to grow by 4-6% and adjusted EBITDA margins are expected to either remain flat or expand by up to 1% versus the prior-year period.

For full-year 2019, Yelp expects net revenue to grow 8-10% with adjusted EBITDA margins increasing by 2-3% over 2018 levels. Transactions revenue is expected to be approx. $15 million and Other services revenue is expected to be around $29 million.

Yelp expects to generate annual savings of approx. $10 million from reduced overhead and lower sales headcount. The company also expects reduced advertising and marketing expense to yield savings of approx. $15 million this year.

The company’s long-term financial targets include generating a mid-teens percentage compound annual revenue growth rate from 2019-2023 and reaching adjusted EBITDA margins in the 30-35% range by 2023.

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