Will Q4 2015 Yelp Earnings Finally Bring Some Reprieve To The Stock?

  • Yelp is due to report Q4 2015 earnings on 8th February 2016 after market close.
  • Expectations for Yelp are low going into the earnings call.
  • Recent checks by a Wall Street analyst suggest that Yelp's traffic problem still persists.
  • Yelp fundamentals are yet to start showing solid signs of improvement and the shares remain a speculative investment at this point.

Leading business review site Yelp (NYSE:YELP) will report fourth quarter 2015 results on 8th February 2016 after market close. Wall Street expects Yelp to report revenue of $152.35M, good for 38.5% Y/Y growth, and EPS of -$0.04 compared to $0.09 in Q4 2014. During its third quarter 2015 earnings call, Yelp said that it expects to report fourth quarter revenue of $149.5M-$154.5M, roughly in-line with the consensus on Wall Street. Yelp also said that it expects EBITDA of $20M-$24M, the mid-point representing a 12% Y/Y drop.

Yelp has missed the last three consecutive earnings estimates.

Yelp Earnings Quarterly Surprise History

Quarter End
Per Share
EPS* Forecast
Sep2015 10/28/2015 -0.1 -0.09 -11.11
Jun2015 07/28/2015 -0.02 0.01 -300
Mar2015 04/29/2015 -0.02 0 n/a
Dec2014 02/05/2015 0.09 0.07 28.57

Source: NASDAQ

Looking at Yelp’s EPS trends, it becomes clear that all is not well with the company. Yelp has consistently failed to turn a profit in the last three quarters running, leading to its shares getting badly hammered. Yelp shares are down 25% YTD while Yelp stock has lost more than 60% of its value over the past 12 months alone.
YELP stock chart

YELP stock price chart by amigobulls.com

Yelp is beset by many troubles which have been weighing heavily on the company. One of its biggest problems is that the company has been seeing a huge drop in traffic, which is a bad sign because the company relies heavily on ad-revenue. The more people visit Yelp pages and view its ads, the more ad-revenue the company is able to realize.

Yelp gets traffic from two main sources: its own mobile app, and from search engines, mainly Alphabet Inc-C (NASDAQ:GOOG). Looking at Yelp’s traffic numbers, the platform received 169 million unique visitors during Q3 2015, an increase of only 21.5% and considerably slower than the company’s top line growth. Yelp and travel reviews site TripAdvisor (NASDAQ:TRIP) have been complaining that Google favors its own reviews in SERP, or Search Engine Results Placement, with Google reviews appearing first when customers need to read reviews about a business or hotel while Yelp and TripAdvisor results appear much lower in the search page. Lower SERP naturally leads to lower clicks and lower traffic. TripAdvisor CEO Jeremy Stoppleman recently posted on Twitter (NYSE:TWTR) saying search results for a particular service with Yelp or TripAdvisor reviews specifically requested were turning up Google reviews automatically. Google apologized and rectified the anomaly saying it was caused by a coding error.


But it appears Yelp’s traffic problem still persists. B. Riley downgraded Yelp shares two weeks ago to 'Sell' and cut its PT by $6 to just $15 (30% below current price) saying that online checks by the firm had revealed that Yelp’s traffic had declined 13% Q/Q and 8%Y/Y during the fourth quarter, a much bigger decline than the 2% Q/Q decline during Q4 2014 due to normal seasonal declines. Yelp shares tanked 10% after the downgrade.

The big problem with Yelp is that it relies so heavily on Google search thus leaving it badly exposed. During the third quarter, out of the 169 million unique visitors Yelp received on its site, only 20 million, or 11.8%, came from Yelp’s app with the rest coming from search engines. As long as the vast majority of people keep finding Yelp through search engines instead of its own app, the company’s traffic problem will continue to persist.

Yelp’s profitability problem has been brought about by its heavy marketing costs as it tries to expand into international markets. During Q3 2015, Yelp spent 57.8% of its revenue on marketing expenses, by far its largest operating expense. Yelp’s marketing expenses grew at a rapid 52% clip, much faster than top line growth. With such a large line item growing so fast, Yelp’s bottom line is almost guaranteed to remain deeply in the red.

Despite its efforts to expand into international markets, Yelp has little to show for its efforts. Yelp’s ARPALB, or Average Revenue per Active Local Business, is about one-seventh ARPALB in North America. Less than 30% of Yelp’s revenue comes from international markets compared with more than 50% for Internet companies such as Google, Facebook (NASDAQ:FB), and Twitter.

Investor Takeaway Going Into Yelp Earnings

Although Yelp shares now trade at a cheap Price-to-Sales ratio of 3.2 after the year-long battering, buying these shares at this point amounts to nothing more than a speculative move, since there are no solid signs that the company’s fundamentals are improving. Trading Yelp stock has been a profitable venture for the shorts over the past one year or so, and appears bound to remains that way in the near future.

Brian Wu Brian Wu   on Amigobulls :
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