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Yelp Validates Its New Flexible Ad Contracts with a Beat and Raise


Yelp Inc. (NYSE: YELP)  announced better-than-expected second-quarter 2018 results on Wednesday after the market closed, detailing accelerated advertising revenue growth and record paying advertising account additions following the rollout of the company's more flexible non-term ad contracts .

With shares up nearly 15% in after-hours trading as the market reviews the news, let's take a closer look at how the local business review specialist ended the first half.

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Image source: Getty Images.

Yelp results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Growth

Revenue

$234.9 million

$209.9 million

11.9%

GAAP net income attributable to common stockholders

$10.7 million

$7.9 million

35.4%

GAAP earnings per diluted share

$0.12

$0.09

33.3%

Data source: Yelp.

What happened with Yelp this quarter?

  • Revenue was above Yelp's guidance provided in May, which called for a range of $230 million to $233 million.
  • Adjusted EBITDA  increased 9% to $47 million, above guidance for a range of $39 million to $42 million.
  • Yelp's bottom line also handily exceeded consensus estimates for earnings of $0.01 per share.
  • By segment:
    • Advertising revenue grew 21% year over year to $226 million, led by growth in the size of Yelp's local salesforce and business owners' positive response to Yelp's new non-term advertising products.
    • Transactions revenue declined to $4 million from $18 million a year ago, driven again by last year's sale of Eat24 to GrubHub . Yelp is now paid a fee under a new partnership with GrubHub for food orders originating on its platform.
    • Other services revenue increased by $1 million to $5 million, driven by efficiencies from combining Yelp Reservations and Yelp Nowait sales teams, as well as growth from the Yelp WiFi marketing platform.
  • Cumulative reviews increased 21% year over year to 163 million.
  • App unique devices grew 15% to 32 million.
  • Paying advertising accounts soared 31% year over year to 194,000, marking a record sequential increase of 17,000 customers from last quarter. Again, growth here was driven by the completion of Yelp's transition to non-term contracts.

What management had to say

Yelp co-founder and CEO Jeremy Stoppelman stated:

Second-quarter results were once again driven by strong revenue growth in our core Advertising business. We completed the transition to selling non-term local advertising in the quarter, which helped deliver record advertising account additions. Our growth initiatives elsewhere also produced encouraging results.

In his latest quarterly letter to shareholders , Stoppelman elaborated on the strategic contract changes that left the market worried  over whether last quarter's strength was sustainable:

We are pleased with how the transition has gone. Clients have responded well to the increased flexibility, and our salesforce has closed more new deals than ever before. We added a record number of advertisers in the quarter, and trial conversion and client retention were consistent with our expectations.

Looking forward

For the third quarter, Yelp expects revenue ranging from $242 million to $246 million, with adjusted EBITDA of $49 million to $52 million. As such, Yelp increased its its full-year guidance to call for revenue of $952 million to $967 million, compared with $943 million to $967 million before, with adjusted EBITDA of $186 million to $192 million, up from $179 million to $188 million previously.

In short, this was a solid beat-and-raise performance from Yelp that should effectively silence skepticism over whether its transition to non-term advertising contracts was ill-advised. And the stock is rightly soaring as investors respond in kind.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Stocks
Referenced Symbols: GRUB , YELP



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